Want a decent retirement income? Save 18% of your income
This is a long shot for most people. Only 12.4% of people in the UK are currently saving more than 15% of their earnings. They would need to save 20% to match the income of today’s retirees, according to Ipsos MORI data. Over 30% of people between the ages of 25-44 make no savings whatsoever.
The ‘Global Savings Gap’ report, produced by the International Longevity Centre – UK (ILC-UK), said the UK pension system was ‘sustainable but inadequate’, and middle-ranking on adequacy and intergenerational fairness when compared to other high-income economies.
Fewer than 1 in 10 (9%) 25-44-year olds had a specific savings target for retirement, compared to around a third in the US and Singapore (29% and 33%) and over half in Hong Kong (59%).
The report said that low investment returns and interest rates, sluggish economic and wage growth and the gradual decline of Defined Benefit schemes means those entering the workforce today will face a tougher path to building a decent income in retirement.
However, it said auto-enrolment was encouraging people to save towards a private pension, though the self-employed and those in part-time work may miss out.
Dean Hochlaf from ILC-UK, said: “The combination of persistently low returns, sluggish wage growth and a changing labour market means today’s young people will need to save more to enjoy their retirement. The government must do more to extend pension coverage and ensure that contributions towards private schemes are sufficient, especially among overlooked groups such as the self-employed and those on low incomes who have yet to benefit from initiatives designed to improve private savings”.
The report recommended a number of policy changes for the UK pension system, including enhancing the ‘nudge’ approach to support higher contributions via auto-enrolment and giving support to groups such as the self-employed to improve their access to private pension schemes.
To find out how much your state pension is likely to be, see the Money Advice Service’s Pension calculator.
To find out how much your private pension could give you in retirement, see Age UK’s Pension calculator.