Millions of over-50s 'sleepwalking' into old age as they face massive pensions shortfall
Economic forecaster will raise alarm about generation of workers who have inadequate personal pensions
10:39 GMT, 30 November 2012
Millions of over-50s are ‘sleepwalking’ into old age with little or no chance of retiring comfortably, Britain’s leading economic forecaster will warn today.
It raises the alarm about a generation of workers who have their own pension, but one that is woefully inadequate.
They have little idea how much is in the pension, how much it will pay them when they retire and how long they will need to live off the money, it is claimed.
Britain's leading economic forecaster raises the alarm about a generation of workers who have their own pension, but one that is woefully inadequate
On average, workers aged between 50 and 64 with a defined contribution scheme would need to increase their pension pot by nearly 80 per cent to retire with the income they say they hope to get.
A defined contribution pension makes no guarantees about how much money it will be worth, unlike a final salary scheme which pays a percentage of your earnings.
One in four in this age group would need to save more than 60,000 extra to get the retirement income that they hope to get.
The research, by the Institute for Fiscal Studies, raises fears that a third of those approaching retirement ‘find it impossible even to hazard a guess’ at their future private pension income.
For example, women who are in their 50s think they will live until the age of 84. In fact, they are likely to live until the age of 88.
The National Association of Pension Funds, which co-funded the research with the Economic and Social Research Council, said this generation is ‘under-estimating’ their life expectancy and is ‘over-optimistic’ about their pension wealth.
Joanne Segars, association chief executive, said: ‘Fortunately people are going to live longer than they think. But they are not planning for it, so they might find their savings and pension do not stretch far enough.
Joanne Segars, association chief executive of the National Association of Pension Funds which co-funded the research with the Economic and Social Research Council
‘Millions are within a decade of their state pension but have still not thought about how long their retirement might last.
‘It is worrying that so many over-50s are sleepwalking into their old age and are expecting to be better off than they might be.’
She said it is ‘a huge ask’ to expect somebody in this age group to increase the size of their pension pot by 77 per cent in order to have the sort of retirement that they are expecting.
For many workers, their only strategy is to keep working into their late 60s, 70s or even 80s, although poor health may scupper these plans.
Gemma Tetlow of the IFS and co-author of the report, said the number of those who are clueless about their pension is worrying.
She said: ‘A remarkable number of people with a pension in their fifties and sixties appear to have little or no idea how much income they will receive.’
Around six in ten individuals have ‘never thought about how many years of retirement they might need to finance’, says the IFS report.
Earlier this week, retirement specialist LV predicted around 6.5million people now over 50 will work beyond the state pension age.
The finding highlights the social impact of the pensions crisis as schemes which pay for a comfortable old age approach extinction in the private sector.
From next month – under Government rules which force bosses to pay into a pension for their staff – up to 11million workers are being automatically signed up to a pension over the next five years if they are between the age of 22 and state pension age and earn more than 8,105 a year.