Pensions - Articles - Gen Z faces pension shock over expectations versus reality


The average saver in their twenties faces an annual pension pot shortfall of £6,500, according to a new report which reveals ‘disengaged’ savers and the self-employed face even steeper gaps between expectations and reality.

 Scottish Widows’ The Future Of Retirement report found that the average saver believes they need an annual income of £25,000 for a comfortable retirement – but at current saving rates, their total pension pot will only provide an income of £18,500 per year.

 The biggest shock, however, is in store for ‘disengaged’ savers, who make up 38% of the population. This cohort is made up of individuals who do not know how much they are saving, or if they are saving anything at all. Despite also anticipating a retirement income of £25,000 each year, this group will only receive £13,000 per year if automatically enrolled – a shortfall of £12,000, or almost half the money they expect to need. The report proposes that increasing minimum contribution rates could help bridge the gap for ‘disengaged’ savers.

 Those who might be more vulnerable to financial pressures, or on lower-middle weighted incomes, have lower expectations, citing £17,500 as the annual income needed in retirement. They still, however, face a significant gap of £3,200 between their expectations, and their projected retirement income of £14,000.

 While this shortfall is lower than the national average, its impact could be great, as this group face real pressures in saving today, let alone for their retirement. In fact, one in five (20%) of those currently earning between £10,000 and £20,000 per annum believe they will never be in a position to retire.

 Those who rent in retirement may have to find sufficient income to cover thousands of pounds of additional rental costs. That is sufficient to risk even the typical saver running into real hardship. Financial pressures over a person’s working life might mean that they take periods of absence from contributing to their retirement savings. This can rapidly diminish the pot they will have in retirement.

 The self-employed risk being left behind without the auto enrolment nudge to save Self-employed individuals are solely responsible for deciding how much should go into their pension pot each month, and so miss out on the ‘nudge’ to save provided by employer pension contributions and government initiatives. While there has always been a savings gap between employees and the self-employed, it has been exacerbated with the introduction of automatic enrolment.

 As a result, just 32% of self-employed people (between the age of 20 and 39) are saving adequately for retirement, while 41% save nothing at all. While their income expectations for later life are slightly lower than average, they’re still set to experience a sizeable annual shortfall of £5,000 by the time they reach retirement.

 Scottish Widows has published a policy paper that proposes solutions for dealing with the challenges outlined in The Future of Retirement report. At the heart of the proposals is a new concept – a “Brit Saver” – that would see increased auto-enrolment contributions, while giving limited access to pensions savings to help with a deposit for a first home, or for use in times of financial hardship.

 Combined with wider reforms to encourage engagement, this could ensure that everyone has an opportunity to enjoy the retirement that they want.

 Pete Glancy, Head of Policy at Scottish Widows, said: “Automatic enrolment is improving the retirement prospects for many, but those who fail to save beyond the default requirements of the scheme will be faced with a significant income gap. “The first step in closing this gap is acknowledging the interlocking challenges faced by different groups, from the self-employed through to those who simply don’t know how much they are saving. “We need to see reform for the self-employed on a par with automatic enrolment and the introduction of new minimum and default contribution levels to address the issue of the disengaged generation.” 

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