Scottish Widows has warned savers in their twenties will face an annual shortfall of £6,500 in retirement as the provider called for auto-enrolment to be reformed.
Research from Scottish Widows, published today (August 22), found the average saver believes they need an annual income of £25,000 for a comfortable retirement but at current saving rates, their total pension pot will only provide an income of £18,500 per year.
Its research, which surveyed 5,036 individuals over the age of 18, also found that disengaged savers, who accounted for 38 per cent of the population and were unaware of how much they were saving, will only receive £13,000 per year if automatically enrolled into a pension scheme – a shortfall of £12,000.
Those with lower expectations cited £17,500 as the annual income needed in retirement. But this still equated to a gap of £3,200 between their expectations and their projected retirement income of £14,000, the provider stated.
Despite this, Scottish Widows proposed that individuals should be able to dip into their pensions to fund a deposit for a first house or in times of hardship.
The firm believes by doing this it will encourage younger people to show an interest in long-term savings.
Scottish Widows first showed support for this policy in July after MP James Brokenshire, former minister for Housing, Communities and Local Government, suggested that first-time buyers should be able to use their pension pots to top up their savings for a house deposit.
The proposals caused a stir in the industry, with many experts unhappy about muddying a pension pot with a housing deposit.
Meanwhile Scottish Widows warned that self-employed individuals risked losing out in retirement as they do not fall under auto-enrolment rules.
The research found that 32 per cent of self-employed people (between the age of 20 and 39) were saving adequately for retirement, while 41 per cent saved nothing at all.
While their income expectations for later life were found to be lower than average, they were still set to experience an annual shortfall of £5,000 by the time they reach retirement, the provider warned.
In a policy paper, also published today, it called for widespread reform, including for auto-enrolment minimum contribution levels to increase to 15 per cent by 2030, with employers and employees continuing to share the cost.
The minimum pension contributions increased in April, from 5 per cent to 8 per cent.
Pete Glancy, head of policy at Scottish Widows, said: “Automatic enrolment is improving the retirement prospects for many, but those who fail to save beyond the default requirements of the scheme will be faced with a significant income gap.
“The first step in closing this gap is acknowledging the interlocking challenges faced by different groups, from the self-employed through to those who simply don’t know how much they are saving.
“We need to see reform for the self-employed on a par with automatic enrolment and the introduction of new minimum and default contribution levels to address the issue of the disengaged generation.”