Only 16% of people contributing into a defined contribution (DC) pension scheme save enough to maintain their standard of living in retirement, according to Aon's DC Member Survey 2016.
On average, Aon calculates that DC members face a shortfall of £1,400 of annual savings into their pension pots. This represents an overall estimated £11.4 billion DC savings gap per year.
The study was conducted across the UK in collaboration with YouGov and surveyed 2,000 DC scheme members. In 2014 employees and their employers saved an average of 15% of their salaries into their pension pots, but now this average has fallen to 12.7%.
While the introduction of auto-enrolment means more people now save into a pension scheme, many of the new joiners pay the lowest auto-enrolment rates, which pulls down the average contribution rate.
Aon looked at what an average individual would need to save in order to be able to retire at age 65 and maintain their living standard.
The firm calculated that a male DC member aged 25, who earns £22,500 a year, would need to save 18% of his salary, or £4,050 per year, to maintain his standard of living if he wants to retire at age 65.
It also worked out a male DC member, aged 40 and earning £30,500, would need to have already saved a pot of twice his salary i.e. £61,000 and continue to save 19% of the salary to maintain his standard of living if he wants to retire at age 65.
For the vast majority of millennials, many of whom are in the position of juggling between paying off student debt and saving towards a house deposit, these figures are more pie in the sky rather than realistic goals, unless the employer contribution is one of the more generous - 10% or more.
Elsewhere, Aon also made the point that despite the equalisation of pension ages, on average women still expect to retire half a year earlier than men.
The combination of retiring half a year earlier and living three years longer means that to have the same income per year they need to save 15% more than men which means an additional 2-3% of their salary.
- Read our article on how to start your pension today.
Sophia Singleton, partner and head of DC consulting at Aon Hewitt, says: "Auto-enrolment has successfully increased participation in pension schemes, but the vital next step is to ensure that these new entrants save a sufficient amount for retirement."
Further, the survey shows that company pensions are still the main source of income when people retire, with almost two thirds of respondents relying on them for retirement income.