Millions of mid-life UK employees are sleep walking into retirement, according to new research from Aviva UK.
The study, which looked in to mid-life2 employees’ financial preparedness for later life, revealed 64% of employees aged 45 and over, the equivalent to nearly nine million people do not know how much they will need to save to afford a comfortable retirement
In addition, over five million mid-life employees (37%) do not know how much is already saved in their pension. Question marks also hang over the state pension with two in five (43%) respondents unaware of how much support they will receive from government. A further 26% do not know at what age they’ll be eligible for the state pension.
With the full new state pension currently valued at £168.80 per week, this adds up to a retirement income of £8,777.60 per year.
Table 1: Percentage of employees aged 45+ that do not know the following information
|% of UK employees aged 45+||Number of UK employees aged 45+|
|The age at which I will qualify for the state pension||26%||3.6m|
|How many pension pots I have||35%||4.9m|
|How much I have currently saved in my private pension(s), if anything||37%||5.1m|
|What type of private pension scheme I have||37%||5.1m|
|How much my employer contributes towards my current private pension||36%||5m|
|The state pension provision||43%||6m|
|What the pension freedoms mean for me||62%||8.6m|
|How much I need to save before I can retire comfortably with the lifestyle I want||64%||8.9m|
Source: Aviva UK, 2019
Most employees (62%) aged 45+ do not know what the pension freedoms mean for them, while 37% do not know what type of pension scheme they have, for example whether it’s a defined contribution or defined benefit scheme.
Never too late to save
However, the analysis also highlights it is never too late to save. Based on the average UK salary of £28,0004, Aviva calculates that an employee aged 45 today, with no savings to date could build a pension pot of £56,100 by the time they reach 65, based on the current minimum employee and employer pension contributions under auto-enrolment alone (a combined 8% of annual pensionable earnings).
Table 2: Projected value of savings for average employee by retirement age of 655
|Starting age||Amount saved by employee
(5% contribution of annual pensionable earnings)
|Amount contributed by employer
(3% contribution of annual pensionable earnings)
|Projected value of pension savings by 65 years old
(projected investment growth of 2.4%)
Source: Aviva UK, 2019