Pensions 

Savers underestimating pension pot size

Savers underestimating pension pot size

A staggering 82 per cent of people do not know how much they need in their pension savings pot to fund their idea of a comfortable retirement, research from 7IM shows.

The survey, carried out among 2,004 adults nationally, also showed people were underestimating the amount needed in retirement by 50 per cent on average. The younger the saver, the more they underestimate savings. For example, 18- to 34-year-olds underestimate by 70 per cent, 30- to 54-year-olds underestimate by 40 per cent and those 55+ and still in work are underestimating by 20 per cent.

More than half (57 per cent) of people worry about not having enough to retire on comfortably – this differed from 64 per cent of women to 50 per cent of men), while one in 20 say it “keeps them awake at night.”

This may be due to the fact that 30 per cent of those surveyed said they are saving nothing, and one in four admit they need to increase their savings “significantly” to get on track to a healthy retirement.

Despite the varying degrees to which they underestimate saving needs, there was no significant difference in the amount of people not saving in each age group. Of the 18- to 34-year-olds, 35 per cent do not save, while 27 per cent of 35- to 54-year-olds and 28 per cent of those 55+ (non-retired) are still not saving towards their retirement.

7IM has also calculated how long someone could live comfortably based on the amount invested and length of time over which they were saving. The Table below assumes the saver receives the maximum £6,029.40 a year state pension and is drawing £17,400 from savings each year to live (the amount its research identified as necessary for a ”comfortable” retirement). It assumes that once the saver reaches retirement, they will invest their savings pot into a vehicle targeting 3 per cent pa return above inflation. The Table shows how long someone can live before the pension pot runs out.

Monthly investmentYears saved before retirement+1% annual growth (months)+3% annual growth (months)+5% annual growth (months)+7% annual growth (months)
£100109101112
2019242937
3030426190
404369118221
£2001018202225
2039486177
306389132206
4091152284480+
£3001046525764
20104132172229
30179275478480+
40282480+480+480+
Source: 7IM.

The research coincides with the launch of 7IM’s latest update to its 7IMagine app, My Future, which aims to help advisers and clients predict how much income shortfall they will have in retirement. The app is free of charge and available on the Apple App Store and Google Play. It is also possible to co-brand the app with your firm’s logo.

But for advisers worried if products like this could overshadow their work, or take away business, 7IM co-founder Justin Urquhart Stewart said, “Nothing beats having an adviser alongside you to explain the options for tackling any shortfall.”

Verona Smith, Head of Platform at 7IM added, “This could be one of the best marketing tools an adviser can have. It’s a smart way of demonstrating to clients and prospective clients the challenges they face. Equally it could be the thing that puts over-anxious clients at ease and encourages them to live life to the full without needlessly worrying about running out of cash.”

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