Young adults need a pension savings reality check
The study by Aegon UK does not paint a pretty picture for the nation’s younger savers who are set to fall well short of the retirement income they want.
It found that 59 per cent of 16-24 year olds do not contribute any money to their pension pot.
Despite this, they hope to retire with an average annual income of £64,000 a year, nearly six times the average income they are on track to get.
To reach their target income, a person aged 20 aiming to retire at age 68 (the expected state pension age), would need to save £500 per month, assuming a 5 per cent return on their investments.
However, with this group hoping to retire at 63, they would have to put away £800 per month.
In total, they would need a savings pot of nearly £1.9m, a sum significantly higher than the pension lifetime allowance.
Young adults are also the least engaged with their pension savings, according to the findings. A staggering 70 per cent have never done anything to review or affect plans for retirement and 54 per cent don’t know whether they are eligible to be enrolled into a company pension.
Despite this, the UK’s younger generation are aware they may need to work longer.
The study found that 38 per cent are prepared to continue working if they have failed to save enough by the time they reach their target retirement age, while three in 10 expect their employer to create a role to help them work on a part-time basis as they approached retirement.
“The findings don’t paint a pretty picture for the UK’s younger savers – unrealistic expectations both in retirement income and early retirement age mean that this age bracket are set to fall well short of the retirement income they want,” said David Beattie, managing director, Aegon UK Direct.
“However, we must remember that younger people have different financial priorities, such as saving for a deposit on a house or paying off student debt, and this can mean putting money aside for a pension doesn’t top the list. What this age group has on their side is time, but it is important this doesn’t lead to complacency. The earlier people start saving, the more their money is likely to do for them in return.
“We want people to start engaging with their pension from a younger age so they will be able to have the retirement they want. We as an industry, have a key role to play, in collaboration with the Government, to help young people, especially those taking their first steps in their careers, see retirement saving as a positive and not just money that gets taken from their pay each month.”