New research from the Institute and Faculty of Actuaries (IFoA) shows that those expecting a moderate or comfortable income in retirement will need to save well above the automatic enrolment minimum contribution.
Savers across the UK could be heading for a retirement that does not meet their hopes and expectations, with 70% of savers whose workplace pension is their main form of retirement saving, only contributing the minimum into their pension.
Mark Williams, chair of the IFoA’s Pensions Board said: “Modern workplace pensions require people to take responsibility for their own retirement saving and planning, but clear and consistent information on how much they need to save can be hard to find. In our survey, almost a third of respondents said they did not know what constitutes a ‘good pension pot’.
“There is a shared responsibility between individuals, employers, the pensions industry and the government to give individuals the best possible chance of having enough money in retirement.”
“This IFoA research, connects the dots between actions taken now and impact on lifestyles in later life. But savers should not be left to navigate this alone. There is a shared responsibility between individuals, employers, the pensions industry and the government to give individuals the best possible chance of having enough money in retirement, and our report provides specific recommendations for each of these groups”.
The IFoA’s modelling concludes that an individual aiming for a ‘minimum’ income retirement target should be saving £86 per month, on average, from the start of their working life. This should be covered by the contribution they and their employer have to make under automatic enrolment.
To work towards the ‘moderate’ level of income, the amount of savings required rises. To reach the full moderate income, an individual would need to save £799 a month on average over their entire working life. This represents around a quarter (26%) of earnings for someone on an average full-time salary. For a couple this would be £753 per month split between two individuals. People should look at the lifestyles described at each of these RLS levels to help picture their future and decide which level, or position between levels, they wish to target and how much they can afford to save.
Mark Williams, continued: “We appreciate that these savings goals are high, and to many, they will appear daunting. But as actuaries, it is our role to ‘do the maths’ and we believe that it is in the public interest to demonstrate the potential scale of under-saving, and the impact it could have on people’s retirement prospects.
“We urge the government to assess whether the current balance between the levels of employee and employer contribution is appropriate. Individuals alone should not be burdened with the responsibility of closing what could become a significant savings gap unless there is further policy reform.”