Everyone wants to be able to retire in comfort with enough funds to enjoy life and do as they please. But for millions of Brits currently approaching retirement, new statistics indicate a bleak future. Research shows that people aged 50 to 64 are approaching retirement with a pension that is almost £250,000 smaller than they require to live comfortably.
So, what’s the cause of this huge pension shortfall? And more importantly, what can future pensioners do to avoid this fate? Read on to find out.
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Why are over-50s facing a bleak retirement?
According to the Social Market Foundation (SMF), a think tank, the typical Brit aged 50-64 has pension savings that are 58% short of what they need. This translates to a total savings gap of £132 billion for the whole nation.
On average, the pensions of people approaching retirement are £242,546 below what is needed for a comfortable retirement.
What’s the cause of the pension shortfall?
One of the main causes of the huge pension shortfall is the relatively ‘hands-off approach’ taken by most people to their pensions. This has led to a huge gap in knowledge and understanding of pensions and savings that is leaving many at risk of inadequately preparing for retirement or spending their pension pots unwisely.
For example, the stats reveal that more than two thirds (69%) of 50-64-year-olds don’t know how much they will need for retirement.
Additionally, most 50-64-year-olds don’t go to an independent financial adviser for regulated advice about their pensions. In fact, only 20% of those with a pension actually do.
Meanwhile, only a small number (14% of those accessing a defined contribution pension pot for the first time) seek advice from the government-backed Pension Wise service, despite it being free.
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How can you make sure that your retirement pot is adequate?
The fact that many Brits are headed for retirement without a sufficient pension pot is quite concerning. So, if retirement is still a long way off for you, what can you do right now to avoid a similar fate? How can you ensure that your golden years are as enjoyable and comfortable as possible?
The first step is to have a clear vision of your ideal retirement lifestyle. Once you’ve done that, ask yourself how much you’ll need to support this particular goal.
If you are having difficulty crunching the numbers to arrive at an accurate figure, seeking professional guidance or advice, or even using a service such as Pension Wise, may be worthwhile.
Indeed, the research from SMF shows that almost half (48%) of those who get professional advice and 35% of those who have used Pension Wise have a reasonably accurate picture of the amount of retirement savings they will need.
With a clear picture of how much you need to save, you can lay the groundwork for reaching your goal. Once again, an adviser can help you with this.
What are your options for boosting your retirement pot?
There are several. The right one for you will depend on your personal circumstances, as well as how much you need to save.
If you have a workplace pension, for example, maxing out your contributions could help you get closer to your goals. Additional contributions will provide an extra boost to your pension in the form of tax relief. Your employer could also increase their contributions to the pension if you increase yours.
If you are expecting to receive the State Pension, you can boost what you will get upon reaching State Pension age by filling any gaps in your National Insurance record.
Another way to ensure that your pension pot is sufficient to support your retirement is to make sure that you are getting the maximum possible returns from any other savings or investments you might have outside of your pension.
In the current environment of low interest rates on cash savings and rising inflation, investing some of your savings in the stock market through a tax-efficient vehicle such as a top-rated stocks and shares ISA value can provide more value for your money. Despite being riskier, stocks have historically outperformed savings accounts in terms of returns.
Final word
Regardless of how you intend to save for retirement, the earlier you begin saving, the better. By starting early, you’ll have more years to contribute and reap the benefits of compound growth. This will increase your chances of amassing a pension pot that’s sufficient to support a comfortable retirement.
