Today’s workers will need to make decisions on how much and when to save in a pension without a guarantee as to what they’ll end up with when they reach retirement.

Research by Milliman on behalf of Royal London found that the decisions people make over their working lives can significantly affect how much they can afford to spend at the point of retirement.

It looked at four different groups of people – those who are ‘comfortable’, ‘managing’, ‘squeezed’ or have ‘limited choices’ and it polled those aged 30, 40, 50 and 60, giving a total of 16 case studies.

The key findings reveal that over two thirds look set to have to significantly reduce their standard of living on retirement and nearly half are reliant on the state pension to fund some of their ‘essential’ spending.

The report also found the significance of making alternative decisions at key life stages. These include:

• A family aged 30 who opt out of auto-enrolment when employee contributions reach 5% in 2019 and do not resume saving until they are 55, would see a 69% fall in their private pension income in retirement.
• A family who review their pension contribution rate on starting work with a new employer offering a generous ‘matching’ contribution finds that a £1,600 increase in annual employee contributions generates an extra £6,900 income in retirement.
• Regular modest increases in contribution rates throughout working life produce a much bigger savings boost than a large increase later in life. Key life events such as children leaving school or moving out of a family home can provide opportunities to review contribution rates.
• The lifetime self-employed who never falls within the scope of auto-enrolment could end up about £3,800 per year worse off in retirement than an employee with the same pre-retirement income.

Ronnie Morgan, strategic insight manager at Royal London, said: “The world of DC pensions is a world of ‘Decision Citizens’ – people whose choices during their working life can profoundly affect their quality of life in retirement. Regularly reviewing workplace pension contributions and increasing them ‘little and often’ is a far better strategy than hoping to make up for a lifetime of under-saving close to retirement.

“This research shows very clearly how many people could be heading for disappointment in retirement unless they get the advice and guidance that they need to make good financial decisions throughout their working lives.”