Two in three workers aged 45-plus are unprepared for retirement and a third don’t know how much they have saved up so far, new research reveals.
Nearly half are also unaware how much state pension they have built up, though this guaranteed weekly income from the Government will be a mainstay of many people’s retirement funds.
Millions of middle-aged workers are ‘flying blind’ towards old age, but it is not too late for them to put their finances straight, according to pension firm Aviva.
Midlife workers: Many people aged 45 and over are sleepwalking towards retirement, new research shows
It has worked out how much you can still save up even if you start late, under auto-enrolment rules.
If you are 45 and on an average annual wage of £28,000, you have time to save up £56,100 before you are 65.
That includes your own contributions, plus free top-ups from employers and the Government, and investment growth which all compound over the years.
Aviva also offers tips on how to get your pension plans on track, by working out how much you have got already and taking advantage of any help available from your employer – read more below.
The pension firm says its research shows many people are sleepwalking towards retirement. It found:
– Some 64 per cent of workers aged 45 and over – the equivalent of nearly nine million people – do not know how much they will need to save to retire on a comfortable income
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– And 37 per cent – roughly five million middle-aged employees – do not know how much they have already saved into pensions
– Two in five, or 43 per cent, of those surveyed do not know how much state pension they have built up through National Insurance contributions
– And 26 per cent do not know what age they need to reach to start drawing the state pension (See below for more on the flat rate state pension, which is currently worth £168.80 a week or just under £8,800 a year)
– Some 37 per cent of employees aged 45-plus do not know what type of work pension they have – meaning whether it’s a defined contribution or defined benefit scheme (See below)
Aviva surveyed more than 2,000 workers aged 45-plus and conducted research among more than 1,000 employers at the start of this year.
What are defined benefit and defined contribution pensions?
Generous gold-plated defined benefit – or final salary – pensions provide a guaranteed income after retirement until you die.
Most private sector employers have now replaced them with stingier and riskier defined contribution pensions.
These take contributions from both employer and employee and invest them to provide a pot of money at retirement, but the worker bears all the investment risk.
Its findings chime with previous research showing that knowledge about saving for retirement is ‘woeful’ across the generations.
Eye-opening statements culled from focus groups reveal that understanding of how pensions work is poor, levels of mistrust and alienation are high, and many people plan to rely on their homes to fund retirement.
Meanwhile, many people are mystified by pension jargon, and feel overwhelmed when dealing with the new pension freedoms available to over-55s of spending, saving and investing their retirement pot.
Read a This is Money guide to pension jargon here.
How much can older workers save up by the age 65?
Aviva calculates that someone aged 45 on the average UK salary of £28,000 with no pension savings to date could build up a pot of £56,100 by the time they reach 65.
This is based on the current auto-enrolment minimum worker contribution of four per cent, an employer contribution of three per cent and government tax relief of one per cent.
Automatic enrolment contributions are drawn from your annual earnings between £6136 and £50,000, but many employers base their payments on total pay, and offer much more generous pension packages as a recruitment incentive. Find out what to ask your employer about pension benefits here.
The projected pension pots below assume investment growth of 2.4 per cent a year after inflation and an annual charge of 0.75 per cent.
Looking ahead: Projected value of savings by age of 65 for workers on average annual earnings of £28k making minimum auto enrolment contributions (Source: Aviva)
What else can you to do to improve your retirement finances?
Aviva offers the following tips for mid-life employees.
‘Moving jobs more frequently means amassing more pension pots. It can be hard to keep track of different pots, however the Government offers a pension tracing service to help you track down any mystery pots.’
Take advantage of your workplace pension and any help available: ‘All employers are legally required to provide a workplace pension. And if we save, our employer must save with us too.
‘Many employers offer employees sessions with financial advisers. It’s therefore worth checking if your employer already has these initiatives in place.’
Who pays what? How pension contributions stack up under auto-enrolment schemes (Source: The Pensions Advisory Service)
‘Millions of mid-life employees are flying blind, and fast, towards their retirement,’ says Lindsey Rix, managing director of savings and retirement at Aviva. ‘At the same time these employees are calling upon their employers for help.
‘As a first step, mid-life employees who are mystified by their pension savings should try to get a clear picture of what they have saved so far and how much of an income this can provide them with over the course of retirement.
‘For some, this may be a pleasant surprise, while for others, it could be the wake-up call that’s needed to spur them to take action.’
Aviva runs a ‘mid-life MOT’ scheme for its staff covering issues such as skills, money situation, general wellbeing, and plans for later life.
The Government has launched a similar plan to encourage people aged 40 and over do a personal, financial and physical stock-take, and it offers a ‘toolkit’ to employers interested in providing such services to workers.
Self-employed people can also ask for free MOT sessions from the Government-backed Pensions Advisory Service.
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