Today’s workers will be forced to work into their late 70s and beyond if they want to enjoy the same level of pension as their parents’ generation, according to a report.
The study, the Death of Retirement, published by Royal London, looks at how long people will have to work to achieve a good quality of life in retirement if they only contribute at the current minimum 8 per cent levels required by the government under its auto-enrolment scheme.
Key findings include someone on average earnings targeting a pension of two thirds of their pre-retirement income. Securing inflation protection and provision for a surviving spouse mean they would need to work to age 77 if they contribute only at the statutory minimum level.
This scenario is based on starting to save at age 22 and contributing every year until retirement.
The report also looked at what would happen to someone who doesn’t start contributing at the statutory minimum level until later in life. It found that those who start saving at 35 need to work to 79 for a pension of two-thirds of pre-retirment income with index-linking and provision for widows and widowers.
Those who delay starting saving until 45 would have to work into their 80s to make up the shortfall, according to the report.
Without significant increases in contributions, we could be witnessing the death of retirement.Steve Webb, director of policy at Royal London, said: “Without significant increases in contributions, we could be witnessing the death of retirement.”
Adviser view
Jeremy Askew, managing director of Town Close Financial Planning, said: “Comparing today’s retirees to previous generations isn’t particularly helpful – you’re comparing chalk with cheese.
“Yes, pensions are higher if we are talking in terms of a fixed income, but the flexibility on offer today allows many of our clients to arrange their finances to suit themselves better.”