People underestimate the required size of their pension pots by up to £550,000, and Baby Boomers should give to the young, a report by Brewin Dolphin has proposed.
A quarter of the UK population admits to saving nothing at all, according to the report, published today (2 November) in conjunction with think tank Centre for Economics and Business Research, incorporating 11,000 responses from the UK.
But according to the study, the Baby Boomer generation have the most of the wealth and can make a big difference.
The over 65s are sitting on an estimated housing wealth of £1.3trn, according to total estimated using average values of homes and average adult household size from Understanding Society.
Pensioners’ incomes are rising faster than the median income for the working population due to generous final salary pensions and the triple lock on state pensions.
A total of 78 per cent of over-55s who intend to support their family financially intend to do so by leaving all or part of their assets to relatives via their will potentially exposing their estates to large inheritance tax liabilities and 48 per cent intend to support relatives with one off costs, the research found.
A total of 41 per cent of over-55s describe themselves as feeling financially comfortable compared to just 26 per cent of 18-44 year olds.
On average, 18-44 year olds think that an income of £30,000 per year would be sufficient to afford them a comfortable lifestyle in retirement - with £22,000 personal pension and circa £8,000 state pension.
However, they would need a personal pension pot of £725,000 to buy an annuity at prevailing rates to provide the level of income needed.
To achieve this income in retirement each month an 18 year old would need to save £437 per month, a 30 year-old £793 per month and a 44 year-old £1,840.
Despite these shortfalls, only 2 per cent of respondents aged 55 or over said they have or would gift money to a relative to top up their pension.
In terms of savings, even higher income groups think they do not have enough spare cash to save, with almost a quarter of respondents - 23 per cent - in households with an income between £60,000 -70,000 saving less than 1 per cent of their net income.
A further 14 per cent of households with an income of £100,000-150,000 are saving next to nothing.
Liz Alley, divisional director of financial planning at Brewin Dolphin said the harsh reality that this country faces is that the outgoing Baby Boomer generation will be the last to enjoy a comfortable retirement unless urgent action is taken now.
She said: "We are calling for older people to fundamentally rethink how and when they pass on their wealth to younger relatives. The solutions we are proposing today are based on earlier and regular gifting as part of a strategic financial plan, rather than focusing on a one-off inheritance. This could help set grandchildren up for life as well as reduce inheritance tax.”
She added: “Given the scale of the pensions and savings crisis faced by younger people, we are calling on the Government to consider new tax incentives to encourage older generations to pass on their wealth sooner, such as making gifts to a grandchild’s Jisa and pension immediately IHT free.”
ruth.gillbe@ft.com
