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Stark survey figures highlight pension savings gap

12 December 2017

Non-retired UK investors are currently saving an average of 11.3% of their income specifically for retirement according to the annual Schroders Global Investor Study.

The study, which surveyed over 22,000 investors globally, including over 1,100 in the UK, found that non-retired UK investors are saving a higher proportion of their income for retirement than the European average (9.9%), and roughly the same as the global average (11.4%).

To afford to live comfortably in retirement the average investor thought they will need to save 12.4% of their income – more than their stated current actual saving rate.

The study also found that many UK investors (73%) feel that their retirement income will be sufficient.

Despite this, nearly half (42%) of retired UK investors surveyed said they wished they had saved more for their retirement.

Are UK investors saving enough?

The chart below sets out analysis undertaken by Schroders. It assumes a starting age of 30 with a £35,000 salary that rises in line with inflation. It shows the real annual returns – where inflation is taken into account – that would be needed to achieve two levels of income: 50% or 66% of salary on retirement. These are typical bands that people aim for. It also assumes they will draw on the money for 18 years, on average.

So, if a saver contributed 15% of their income, they would require an average annual real return of 4.3% (the middle column) to achieve a retirement income worth 50% of their income. If they contributed 10% of income, however, they would need a return of 6.9%, a level higher than the long-run return on equity markets.

However, the study also found investors remained optimistic on the outlook for returns. In the UK, investors anticipated their investments would return 8.7% a year on average, over the next five years.  The Schroders Economics Group has forecast a 5.4% annual return for UK equities over the next seven years, or 2.4% a year after inflation is taken into account.

Reliance on state pension

UK investors would like to retire, on average, at 59.7 years old, according to the study. Once retired, the state pension will help fund their retirement but to a much lesser extent than other countries.

On average, less than a fifth (16%) of their retirement income will/has come from the state pension, compared with over a quarter (26%) in Europe and just under a fifth (19%) globally.

In the UK, a high proportion of retirement income is expected to come from company pensions (30%) and other savings (17%).

Lesley-Ann Morgan, head of Retirement at Schroders, pointed out that while it is “well known” that people aren’t saving enough for retirement “this study shows that even those who are already established investors are not putting away enough money.

“There’s also a strong message from some of those who have already saved: ‘I wish I had saved more’.

She added: “The pension savings gap is further compounded by the fact we’re in an age of low rates and low returns. To reach their goals, people will need to save even more than savers did in previous generations.

“The study shows non-retired UK investors are only putting away 11.3% of their income but say they want to retire at age 60. Our analysis shows that someone who started saving for retirement at age 30 is likely to need savings of 15% of their income, or above each year, if they wanted to retire on a minimum of 50% of their salary.”

Source: Schroders Retirement team. For illustrations only. Starting age 30 years, retiring at 65. Starting salary of £35,000 assumed to grow at the rate of inflation. Replacement rate based on current annuity rates generating an income of 66% and 50% of final salary respectively.


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