Warning for 1.2m people who won’t be able to afford holidays in retirement – are you saving enough?
OVER a million people will no longer have enough in retirement to live even a minimum lifestyle, and won’t be able to afford holidays abroad.
Nearly two-fifths (38%) of people are estimated not to be on track with their pension savings, the latest research from Scottish Widows shows.
That figure is up from 35% in last year’s annual report and equates to an additional 1.2 million people.
Scottish Widows used the retirement living standards produced by the Pensions and Lifetime Savings Association (PLSA) to make the finding.
The minimum standard under its definition is having enough income in retirement to cover basic needs with some left over for fun.
For example, this includes being able to afford a one-week UK holiday and having £50 to spend a week on groceries or £95 as a couple.
The minimum standard assumes that someone would not have a car.
The increase in those projected to fall short of the minimum standards has been driven by living cost rises, such as surging rents, the report said.
It added: “More people will be renting or carrying mortgage repayments on through retirement in the future.”
The research, which used a YouGov survey of more than 5,000 people across the UK in March and April, found that more than half (54%) of UK retirees expect to work longer than they would like – on average by seven years.
The typical age that people said they would like to retire at is 62.
Scottish Widows’ 20th annual retirement report also found that younger generations would like to retire even earlier.
People aged 18 to 29 want to retire at 61 typically, and would be prepared to work until 64 on average if necessary – although this would still leave a gap before they reach state pension age, which is currently 66.
Across all age groups, more than a quarter (27%) of those who have made retirement plans do not feel that they would ever be able to afford to do it.
Scottish Widows has suggested a roadmap to increase minimum contributions into pensions from 8% to 12%, “with a strong steer that those who can afford 15% should do so”.
What is pensions auto-enrolment?
HERE's what you need to know about pensions auto-enrolment:
What is pension auto-enrolment?
Since October 2012, employers have had to enrol their staff into workplace pension schemes as part of a government initiative to get people to save more for retirement.
When does auto-enrolment apply?
You will be automatically enrolled into your work’s pension scheme if you meet the following criteria:
- You aren’t already in a qualifying workplace scheme.
- You are aged at least 22.
- You are below state pension age.
- You earn more than £10,000 a year
- You work in the UK.
How much do I contribute?
There are minimum contributions that you and your employer must pay.
Your minimum contribution applies to anything you earn over £6,240 up to a limit of £50,270 in the current tax year. This includes overtime and bonus payments.
A minimum of 8% must be paid into the pension, with you contributing 5% and your employer paying at least 3%.
What if I have more than one job?
For people with more than one job, each job is treated separately for automatic enrolment purposes.
Each of your employers will check whether you’re eligible to join their pension scheme. If you are, then you’ll be automatically enrolled in that employer’s workplace pension scheme.
Can I opt out?
You can choose to opt out, but you’ll miss out on the contributions from the government and from your employer. If you do choose to opt out you can opt back in later.
Pete Glancy, head of pensions policy at Scottish Widows, said: “The growing gap in retirement outcomes and people’s quality of later life, between those who are currently retired and those who will retire in the future, is of great concern.
“It is likely to be a long time before Britain has been saving enough to give future pensioners the outcomes they hope for.
“In the meantime, helping people to make the very most of what they have is going to be critical.”
He added: “At present, only the wealthiest tend to rely on professional support from a qualified financial adviser.
“As an industry, we need to find a way to give people better support in making good financial decisions at a price more savers are willing and able to pay.”
How much do I need to retire?
Earlier we reported that a couple hoping to retire and take two holidays in Europe each year will need to save thousands more than they did last year.
The current amount is £59,000, up from £54,500 last year, according to the PLSA.
Single retirees must bring in more than half that, with £43,100 a year needed to achieve the same standard of living.
The PLSA regularly looks at how much you’d need to have coming in each year to afford different levels of comfort after you retire.
How does the state pension work?
AT the moment the current state pension is paid to both men and women from age 66 - but it's due to rise to 67 by 2028 and 68 by 2046.
The state pension is a recurring payment from the government most Brits start getting when they reach State Pension age.
But not everyone gets the same amount, and you are awarded depending on your National Insurance record.
For most pensioners, it forms only part of their retirement income, as they could have other pots from a workplace pension, earning and savings.
The new state pension is based on people’s National Insurance records.
Workers must have 35 qualifying years of National Insurance to get the maximum amount of the new state pension.
You earn National Insurance qualifying years through work, or by getting credits, for instance when you are looking after children and claiming child benefit.
If you have gaps, you can top up your record by paying in voluntary National Insurance contributions.
To get the old, full basic state pension, you will need 30 years of contributions or credits.
You will need at least 10 years on your NI record to get any state pension.
They count all household bills, groceries and eating out, travel costs and owning a car, holidays, TV subscriptions such as Netflix, clothes, beauty treatments and even money spent on giving birthday presents.
Three retirement lifestyles are covered – minimum, moderate and comfortable – and they help give people an idea of what kind of life they can expect in retirement.
With the soaring cost of living, and in particular, rising food and energy bills, the amount needed for each has shot up.
The PLSA put the annual cost of a moderate retirement income for a single person at £31,300 in 2023/24 up from £23,300 in 2022/23 – and an £8,000 rise.
The triple lock, which is used to uprate the state pension, acts as a crucial safeguard against rising retirement living costs, researchers said.
With a significant 8.5% increase to just over £11,500 per year from April 2024, the state pension remained a substantial foundation of retirement income.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
Plus, you can join our Sun Money Chats and Tips Facebook group to share your tips and stories