Just over half saving enough for retirement

Press Association
Retirement annuity sign post
Retirement annuity sign post

Pension savers are closer to creating a comfortable retirement for themselves than at any other time in the last decade, with well over half now deemed to be saving adequately, a report has found.

The annual Scottish Widows Retirement Report found that 56% of over-30s are saving enough for their retirement, which is up from 53% last year and marks the highest level recorded since its records started in 2005.

Despite the improvements, one in five (20%) people are still not saving anything for their retirement, equating to around 6.2 million people across the UK, the report said.

Men are more likely to be saving adequately for their later years, at 60% compared with 52% of women.

The index tracks the percentage of men aged between 30 and 64 and women aged 30 to 59 who are deemed to be saving adequately for their retirement.

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Someone is defined as saving adequately if they have a salary of at least £10,000 and are either putting aside at least 12% of their income for their retirement, including any employer contributions, or they expect their main pension to come from a "gold plated" defined benefits scheme which offers a guaranteed level of income, such as a final salary pension.

People classed as adequate savers are still likely to experience a fall in their living standards in retirement compared with when they were working.

The report also found that, on average, savers are finally putting away the amounts they need to for a comfortable old age.

For the first time in 10 years, the average proportion of earnings being put away each month towards retirement has reached the 12% recommended by the report. In 2006, people were typically saving just 6% of earnings for retirement and in 2013 the average was 9%.

The research also found that while people would generally like to retire by the time they are 63, they would also be prepared to wait until 67.

The report said: "We can now confidently say the nation is closer to creating a comfortable, more enjoyable retirement than at any point since we began taking the UK's pension pulse more than a decade ago."

The report found "strong evidence" that an improvement in the future fortunes of 30 to 49-year-olds is gathering pace, with 54% now saving what they will need, up by 12 points in two years.

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It said: "This determined movement towards adequate saving is particularly impressive for this age group because of the other financial pressures on them, including the costs of raising a family and high mortgage costs."

The pensions industry has undergone a huge series of shake-ups in recent years, aiming to encourage retirement saving and build savers' confidence that they are saving into schemes which offer good value.

From autumn 2012 onwards, people have been automatically enrolled into workplace pensions. So far, the proportion of people staying in their workplace pensions has exceeded expectations, with around nine in 10 choosing to remain.

The way people can use their pension pots when they retire also underwent a change in April, with savers aged 55 and over no longer having to buy a retirement annuity with their pots. Instead, they can take their pot how they wish, subject to tax, although there have been concerns that some people have been unable to make the most of the new freedoms.

The report said a "period of calm" is needed to give people time to take in all of the new rules.

It said: "The public need the chance to digest the new pension rules, and educate themselves about the options now available to them, in order to make crucial decisions about their financial future."

Ian Naismith, retirement expert at Scottish Widows, said: "Both the industry and the Government need to continue working together to help people understand the living standard their savings might produce in real and tangible terms.

"Having a plan in place, starting to save earlier and putting aside more for later life will mean people will be better prepared to close the retirement aspiration gap."

The latest report surveyed more than 5,000 people across the UK.

Minister for Pensions Ros Altmann said: "It is excellent to see retirement saving reaching new highs, but this achievement does not take away from the challenges that lie ahead.

"More than 47,000 businesses across the country have automatically enrolled their staff into workplace pensions and now we must support Britain's smaller firms to do the same.

"Our pension reforms are starting to give people greater security, independence and encouragement to plan for their future and we must continue on this journey."

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