InvestmentsNov 24 2015

Savings are up, but still not enough

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Savings are up, but still not enough

The number of people putting money away for the future has increased over the past year. But the amount they are saving is still not enough to meet their retirement needs, according to BlackRock’s latest Investor Pulse survey.

The average saver put away £2,116.16 last year, but almost one third of people saved less than £600, the survey revealed.

While this shows that auto-enrolment (AE) has been successful in encouraging more people to save more, savers are still not putting enough money away or setting realistic goals to meet their desired income. The fact that more people are saving into a workplace pension could lull them into a false sense of security that so long as they are saving, they will have enough to live on in retirement.

The survey showed that over the past two years there has been a 28 per cent increase in the number of 25- to 74-year-olds saving for retirement, but many still do not have realistic goals about the amount they need to put away. Millennials (people aged between 25 and 34) drastically underestimate their life expectancy and age they will retire, and subsequently the amount of money they will need for those years.

A 30-year-old today will live until about age 90, but on average millennials predict that they will live to just 79. This age group also believes that a pot of £167,000 would give them their desired income of £27,000 per year, when in reality they would need around £540,000 for a sustained income.

Alex Hoctor-Duncan, head of retail, EMEA at BlackRock, said of millennials, “They’ve got to multi-task their money in a way that no other generation has had to do in the past.”

The number one priority of this age group is to own property, but first they will need to prioritise paying off outstanding debts, most commonly student loans.

Mr Hoctor-Duncan continued, “I think millennials are very smart people, but what they need to understand is the type of Britain they are going to inherit. It has never been easier to get into debt.” He encouraged young people to take advantage of the low interest rate environment to pay off any debts.

By 2035, this generation stands to be the first to be worse off than their parents. Despite this, the survey showed more than half reported feeling more positive about their financial future, citing an improving UK economy, low inflation, and a healthier job market as reasons behind their positive outlook.