Young workers are facing a 60 per cent shortfall in their retirement savings compared to those who are entering retirement this year, according to analysis of latest official figures.
According to the Financial Conduct Authority's paper on the accumulation of wealth in the UK, out today (May2) half of all 20-29 year olds have no retirement savings and those aged 30 to 39 have saved less than £30,000.
However these figures are from 2014 to 2016, before auto-enrolment was introduced for all employees earning more than £10,000 per year.
Wealth management business Quilter has taken this into account and found it still results in a 60 per cent shortfall in the amount of money millennials can expect in retirement compared to people who are heading into retirement now.
Ian Browne, pensions expert at Quilter, said: "According to the paper the average individual aged 60-65, based on what they have accumulated to date, might expect to achieve a gross annual retirement income of around £14,200 to £17,000.
"Our recent calculations, using Money Advice Service pension calculator, for those in their mid-twenties relying solely on auto-enrolment make for a worrying comparison of what they might hope to receive.
"Our figures suggest that if a 25-year-old on a current average annual UK salary of £28,700, remains in a similar role and is auto-enrolled until the age of 68, they might expect to receive a retirement income of around £5,600 per year in real terms. This works out to be a terrifying 60 per cent shortfall."
The FCA also found that almost 40 per cent (14m) of working age individuals have no private pension wealth at all, while a quarter of these individuals have more than £100,000.
"This kind of data should be a wakeup call to people that while changes such as the auto-enrolment minimum contributions for pensions going from 2 per cent to 3 per cent for employees are good they are still far from enough for later life," said Mr Browne.
"Government and the pensions industry need to boost engagement from a young age and hammer home that foregoing yet more of their salary is not only worth it, it is necessary."
Based on pensions data alone, the regulator has estimated that an average person can expect to receive an annual retirement income of between £14,200 to £17,000.
Wealthier individuals can expect a comfortable retirement but poorer individuals may have to depend on the state pension and benefits, the FCA stated.
The regulator has stated that to estimate how much people need to save for their future it would need to create "a microsimulation model to simulate the distribution of pensioners' incomes into retirement".
Through this the FCA could study the effects of earnings and savings behaviour of millennials on their future levels of retirement income.
The FCA stated: "[This model] can show how a particular policy change or economic scenario might impact individuals with low earnings differently from those with high earnings.
"Key risks – such as unemployment and pension participation rates, returns on investments, longevity, health and long-term care costs – which are faced by savers planning for retirement can be explored within this framework."