The majority of UK adults are not confident they will have saved the £500,000 needed to achieve a moderate standard of living in retirement, new research by St. James’s Place has revealed.
St. James’s Place new Financial Health Report analysed where people believe they are on their retirement journey in terms of estimated pensions wealth and how current levels of understanding of what is required to live reasonably well in retirement may be impacting the nation’s confidence and ability to reach the savings targets required.
The report found that UK adults estimate their total pension wealth to be £50,923 on average with nearly half (48%) of pension holders estimating they have less than £50,000 in pension savings, while a third (61%) estimate they have below £100,000.
In addition, across the nation, one in six (17%) say they only have the State Pension in terms of retirement wealth, although St. James’s Place said that the impact of auto-enrolment means only 7% of those aged under 35 are solely relying on the State Pension. However, this figure rises to 19% of 55-64 year-olds and 28% of 65 -74 year-olds.
For those either at retirement or close to retirement, the report found that average total retirement savings across workplace and individual pensions is £76,151 for those aged 65 to 74 rising to £89,349 for those aged 55 to 64.
The wealth management group said that whilst some people may boost their retirement incomes by working longer or part-time, the levels of pension wealth are far from the estimated pension pots required for a more comfortable standard of living in retirement.
According to the Pensions and Lifetime Savings Association, a person would need £500,000 to achieve a moderate standard of living. However, 60% of people are not confident they will be able to save this amount by the time they retire, with just 28% feeling confident.
Those closest to retirement were the least confident, with just 15% of those aged 45-54 and 55-64 confident they will have £500,000 saved by retirement. This compares to 32% of 35-44 year old and 40% of 25-34 year-olds.
The picture is similar for a comfortable standard of living in retirement which requires savings of up to £790,000. More than two thirds (67%) do not feel confident they can achieve this, more than three times the number (21%) who believe they can save this amount.
Moreover, St. James’s Place said many people are also severely underestimating how much they will need to ensure a reasonable standard of living, with more than a fifth (23%) believing they will need less than £50,000 in their retirement pot. Nearly four in 10 (37%) believe they will need £100,000 or less, while 44% estimate they will need a total pot of £200,000 or less.
A substantial number of people are also not engaging with their pension, with a third (32%) admitting they have no idea what pension they have and 19% stating that they have never reviewed their pension. Additionally, 23% say putting money aside each month for their pension is not a priority.
Alexandra Loydon, director of advice policy & operations at St. James’s Place, said: “As a society, we face significant gaps in awareness and preparedness for retirement. The shift from defined benefit to defined contribution pension schemes has transferred the burden of saving for retirement onto individuals and, while the introduction of automatic enrolment into workplace pension schemes marked a significant milestone in promoting retirement savings, the harsh reality is that many individuals are facing significant shortfalls.
“It is concerning that many people lack an understanding of how much they need to put aside to fund a moderate or comfortable standard of living in retirement and are not confident they’ll reach these standards by retirement. Even among those approaching retirement, confidence is worryingly low.”
St. James’s Place said its report highlighted the impact of financial planning on financial security, with 56% of those with a financial plan feeling secure about their future finances, compared to 33% of those without a financial plan. Putting money aside for retirement each month is a key priority for nearly half of those with a financial plan (49%) compared to a quarter (25%) of those without.
Loydon added: “Our research shows that having a financial plan in place builds confidence and engagement with retirement finances. As we move forward, decisive action at a policy, industry and individual level is required, such as integrating financial education into the school curriculum, addressing the current shortfalls in auto-enrolment contributions, and enhancing access to financial advice and guidance to help overcome barriers to retirement planning.”
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