12 million adults under-saving for retirement
For 40-year olds to have any chance of an 'adequate' pension they need to put away 26% of their earnings, according to new research from the Pensions Policy Institute.
A report shows that 12 million adults are under-saving for retirement, despite auto-enrolment rolling out to thousands more this year.
"Saving at the minimum automatic enrolment contribution level will not provide an adequate retirement income," is the message from the PPI. Its findings show that someone saving the minimum rate of 8% of their salary has a less than 50/50 chance of achieving an adequate retirement income.
Even someone who starts saving at age 22 needs to increase their monthly contribution to 12%, including personal, employer and state contributions.
Tom McPhail, head of pensions research at Hargreaves Lansdown, says employers have a responsibility to explain what auto-enrolment is, to ensure opt-out rates remain low. However, he adds, simple steps to improve retirement provision include saving more, working longer and considering alternatives such as equity release.
"Everyone needs to be able to take responsibility for their own retirement, otherwise they'll end up having to work on into their 70s," he comments.
Figures from the broker show that an individual earning £30,000 per month, who starts contributing 8% of their salary at age 22 – which equates to £162.21 per month – will be left with a total retirement income of £17,047 per year with their state and private pension combined. This is a monthly deficit of £51.88.
If retirement saving is delayed until age 35 this deficit increases significant to £341.05 per month.
Too little, too late
John Fox, managing director at Liberty Sipp, says auto-enrolment is "too little, too late". "We need to urgently reassess the very structure of pensions in the UK, and how people use them. [That structure] has a finality and an inflexibility that puts people off. It doesn't reflect the challenges of modern life," he says.
Fox points to the Canadian system, where individuals can take a tax-free loan from their pension fund to help towards the purchase of their home, as an example of the kind of "thinking outside the box" that is needed.
"[Auto-enrolment is] the retirement equivalient of rearranging the deckchairs on the Titanic; it will not make a jot of difference to the final outcome. So what do we do? We either panic or we try to find new ways to get people saving," he adds.
This article was written for our sister website Money Observer
Like a self-select ISA but for pensions, self-invested personal pension is a registered pension plan that gives you a flexible and tax-efficient method of preparing for your retirement. It gives you all sorts of options on how you put money in, how you invest it and how it’s paid out and offers a greater number of investment opportunities than if the fund was managed by a pension company. SIPPs are very flexible and allow investments such as quoted and unquoted shares, investment funds, cash deposits, commercial property and intangible property (i.e. copyrights, royalties, patents or carbon offsets). Not permitted are loans to members or people or companies connected to the SIPP holder, tangible moveable property (with the exception of tradable gold) and residential property.
Payment protection insurance is designed to cover you should you fall ill, have an accident or lose your job and can’t make repayments on loans or credit cards. However, research by consumer watchdogs found the cover to be overpriced, filled with exclusions (policies exclude self-employment, contract employees and pre-existing medical conditions) and were often mis-sold because the exclusions were never fully explained. In May 2011, the High Court ruled banks had knowingly mis-sold PPI and ordered them to compensate around two million consumers.
A term to describe financial products or ‘plans’ that help older homeowners turn some of the value (equity) of their homes into cash – a lump sum, regular extra income, or sometimes both – and still live in the home. There are two main types of equity release: lifetime mortgages and home reversion plans (see separate entries for both). Whichever type you choose, you borrow money against the value of your property, on which interest is charged, and the loan is repaid when the house is sold after your death.
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