“The FCA research note exploring what the distribution of wealth tells us about the nation’s preparedness for retirement makes for some scary reading particularly for Britain’s younger generations.
“According to the paper, half of all 20 to 29-year-old have no retirement resources, and of those aged 30 to 39, half have less than £30,000 saved. Now this is in part down to the fact that its analysis is of data from 2014 to 2016 so doesn’t capture the role of auto-enrolment, but worryingly even once that’s taken into account there works out to be a terrifying 60% shortfall in the amount of money millennials can expect when they enter retirement compared to those today who are just about to start enjoying their golden years.
“According to the paper the average individual aged 60-65, based on what they have accumulated to date, might expect to achieve a gross annual retirement income of around £14,200 to £17,000. Our recent calculations* for those in their mid-twenties relying solely on auto-enrolment make for a worrying comparison of what they might hope to receive. Our figures suggest that if a 25 year old on a current average annual UK salary of £28,700, remains in a similar role and is auto-enrolled until the age of 68, they might expect to receive a retirement income of around £5,600 per year in real terms. This works out to be a terrifying 60% shortfall in the amount of money millennials can expect when they enter retirement compared to those today who are just about to start enjoying their golden years.
“While naturally many are likely to see increases in their salary between those years and hence an increase in contributions, the projections still often turn out significantly less than generations previously and importantly what most would expect to spend during their retired lives. This kind of data should be a wakeup call to people that while changes such as the auto-enrolment minimum contributions for pensions going from 2% to 3% for employees are good they are still far from enough for later life. Government and the pensions industry need to boost engagement from a young age and hammer home that foregoing yet more of their salary is not only worth it, it is necessary.
“Although this research offers nothing surprising to many, particularly those in the industry, it should serve as yet another warning that unless younger generations take retirement saving into their own hands they risk poverty in later life.”
*Calculated using the Money Advice Service pension calculator.