Just when you think the news about UK private pensions cannot get any worse, another terrifying deficit figure hits the headlines. This time, instead of a deficit in final salary schemes, the deficit in question relates to the amount of money that people believe they will have available to them when they retire.
Recent research by consultancy Hewitt measured the gap between people’s expectations about their retirement income and the real amounts that had been invested. That gap measured at £1.2 trillion, which was fifty percent bigger than when the last batch of similar research was carried out in 2004.
How can they measure this “expectation gap”? Hewitt interviewed workers about their expectations of what they would receive from returns their current pension savings would deliver. For instance, a 43 year old man on an average salary of £25,000 who is contributing 6% of his salary expected around £15,000 per annum on retirement from his UK private pension fund. This saver would no doubt have been horrified to discover that to achieve that amount he would have to up his pension contributions to 19% of his salary or work until he was 70 years old. On his current rate of savings, his retirement income would only be £5,900 per year.
The research shows that more than 4 in 10 workers are relying on the state alone to fund their retirement, with 42% or workers not belonging to any employer sponsored scheme at all. It seems that saving for a pension is seen as a luxury after paying the mortgage, utility and other bills.
A spokesman for the Hewitt consultancy said that awareness among pension savers about the reality of their true financial situation was very poor, and expressed surprise that few people were prepared to modify their behaviour once they discovered the extent of the gap between their expectations and the reality.
