Pensions contributions reach an all-time low
The number of people in the UK saving for retirement is at an all-time low, according to a report by pension provider Scottish Widows.
The firm said pension savers had been hit by a "triple whammy" of continued economic uncertainty, older first-time buyers and an ageing population.
Just 45% of the 5,200 people surveyed said they are currently saving enough for their old age while one in five people said they were saving nothing at all for retirement.
Despite UK pension provision falling to a lower level now than at the height of the recession (when 54% of people said they were saving enough), people’s expectations for their retirement income actually increased by £700 a year from 2012 to 2013.
People said that at age 70 they would feel comfortable living on £25,200 a year (compared to £24,500 in 2012).
But Scottish Widows said that based on this year's average savings levels, someone retiring at 65 right now would receive under half that amount. The average pension pot is worth £122,000 which, when boosted by the state pension, would generate an annual income of around £11,400.
Ian Naismith, pensions expert at Scottish Widows, said: "We are being hit with a triple-whammy of, firstly, continued economic uncertainty making it difficult to save for the long-term; secondly the age of first time buyers rising as we face troubles getting on the property ladder and thirdly an ageing population. These factors combined create a perfect storm for those heading towards retirement.
"People are now less prepared for retirement than at the height of the downturn a few years ago, yet expectations for income in retirement are still increasing. To meet these aspirations, an average saver would need to save £12,000 a year, or £1,000 per month.”
The research also found that those approaching retirement are doing so with an increasing amount of debt. Almost 5.3 million (24%) Britons aged over 50 have a mortgage, over one in four (25%) have credit card debt and one in 10 (8%) have an unsecured loan. Out of those who are already retired, a third (32%) said they are still paying off debts: excluding mortgage debt, the average amount owed is £5,682.
He said Britons needed to take three steps to ensure they have a secure retirement: start saving at a younger age, save more, or retire later than planned. While most people begin saving for a pension in their 30s, starting five years earlier could add almost a fifth (£19 to every £100) to their annual retirement income; starting 10 years earlier could add £39 to every £100, adding an extra £1,500 to annual income in retirement.
Ian Naismith adds: "Whilst starting saving as soon as possible is highly desirable, and increasing contributions as retirement approaches is almost essential, the biggest single difference can come from postponing retirement. The issue is whether a nation that aspires to stop working at 62 and have an annual income of £25,200 can accept this change."
Unsecured loans mean the loan is not secured on any asset you already own, such as a house, car or other assets and so is a riskier prospect for the lender. Therefore, they usually come with higher interest rates than their secured counterparts, are less flexible and levy high redemption penalties. Most “personal” loans are unsecured.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.