This means employees would need to save an additional 33% of salary to make up the shortfall. The March 2011 index value stands at 67.6, down from a base of 100 at the start of the Millennium.
The Alexander Forbes National Pension Index shows while the average 30 year old in 2000 could have expected contributions of around 12% of salary to be enough to provide a two-thirds income in retirement at age 65, that same saver would now be expecting an income of just 45% of final salary.
Investment under-performance, historically low gilt yields and significantly higher annuity prices have conspired to mean that experience has woefully trailed expectations.
To get back on track, the typical investor (now 41 years of age) would be required to invest 33% of final salary. Office for National Statistics (ONS) data shows the average total (employer and employee) contribution rate is just 8% of salary, which is 66% of the original savings rates and just 25% of the rate currently required to restore expectations.
The construction of the Index is holistic, including State Benefit expectations and allowing for past-accrued benefits, bringing all sources of pension revenue into the equation. For a given member, the Index tracks the progression of the DC fund against expectations and takes into account changes in market annuity rates. Members at different ages will have had different outcomes to the 30 year old outlined above, and these can also be tracked. Alexander Forbes intend to release indicative data for typical members at various ages on a regular basis, to aid the general understanding of how changes market conditions are likely to affect retirement income.
Steve Watson, head of DC, Alexander Forbes Consultants & Actuaries said: "We want people to wake up to the pension crisis in the UK. There is lots of media coverage about lack of pension savings - but to date few people really understand what it means to them in hard cash.
"It's vital that people begin to understand the figures or we'll have a whole generation retiring on a fraction of their working salaries."
