More than nine out of 10 (92%) employees put between 0% and 5% of their earnings into their pensions, risking a significant shortfall between their actual and desired level of income during retirement, according to research from workplace pensions and savings business Punter Southall Aspire.
The research found that (based on the average UK salary of £26,500) someone contributing 5% of their earnings over a 30-year period who is supplemented a further 5% by employer contributions would be left with a pension pot of £183,787, assuming annualised fund returns of 5%. This would provide them with an annual retirement income of £9,190, based on the current average length of retirement of 20 years.
However, research carried out by NEST found that, on average, £15-£20,000 appears to be the lower threshold needed for significant numbers to begin feeling more positive about their situation in later life.
According to the study nearly half (46%) of employers typically contribute 5% to 6% of pensionable earnings. However, 19% of employers in the UK contribute 10% or more, with the majority of these operating in the financial services sector.
Alan Morahan, managing director at Punter Southall Aspire, said that although automatic enrolment is a step in the right direction, a “sizeable gap” remains between actual contributions and the amount people need to save for a reasonable standard of living in retirement. “There is also a danger that some employees contributing at the automatic enrolment minimum levels are lulled into a false sense of security, believing their contributions will be sufficient to deliver a meaningful retirement income,” he said.
“Employers can help by informing and educating their workforces. Our research also suggests that most employers recognise the importance of helping their employees plan for retirement and are providing support services to improve their understanding of its advantages and risk factors.
“We expect the communication role of employers to develop further and indeed some employers, particularly the larger ones, are now taking steps to support staff of all ages with guidance on a wide range of financial matters,” he added.
