PensionsDec 1 2015

Workers must wise up on saving and state pension

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Workers must wise up on saving and state pension

Future pensioners are less likely to benefit from final salary pensions and will have to wait longer for their state pension – yet they have still proved to be oblivious to how much they will need to save.

This was the warning from Stan Russell, retirement income expert for provider Prudential, who warned that younger people who are currently in work had potentially unrealistic expectations of when they will be able to retire and how much they will have to live on.

Mr Russell said: “In a world where fewer people will benefit from generous final salary pensions, and everyone will have to wait longer to receive the state pension, making plans based on any false financial expectations may lead to problems later in life.”

Mr Russell based his assertions on research carried out among 1,024 people by Prudential, which found that workers of all age groups were confident – wrongly so – that they could afford to retire significantly earlier than their respective state pension ages.

Anyone born after 5 April 1978 will have to wait until their 68th birthday before they can start to claim the state pension. But the under-35s interviewed by Prudential expect, on average, to retire before they are 64 years old.

For people aged 35 to 54, their state pension age will be between 66 and 68 depending on when they were born. However, they estimate that they will, on average, retire before their 63rd birthday.

In Summer, Prudential research showed that the average person planning to retire in 2015 expects to have an annual retirement income of £17,000.

Adviser view

Chris Daems, director of Essex-based Cervello Financial Planning, said: “There is undoubtedly a gap between the level of expected income in retirement and the reality based on current savings levels, and this is reflected in the findings of the recent Prudential study. There are a number of initiatives, including automatic enrolment, which may help to close this gap. But the reality is that the impact of some of these initiatives may take some time.”