UK Savings Crisis: The Five Year Retirement

  • Savers say they need £23,457 per year as a comfortable retirement income;
  • UK pension funds could only support that income for five years;
  • Average pensions pot would only pay out £6,011 per year in today’s money.

The gap between retirement aspiration and reality is revealed today as new research shows that funding a comfortable retirement would leave millions of pension pots empty after just five years.

The year-long investigation into Britain’s savings and debt habits, involving more than 8,000 savers, has revealed that people in Britain are putting aside only a quarter of the amount needed for a comfortable retirement. This means a clear choice is emerging for savers – to change radically their saving habits or to work longer and accept a ‘minimum wage’ retirement.

The ‘Savings Gap’ campaign by financial and technology services firm True Potential was launched in August 2013 to examine the true state of Britain’s personal savings and debt habits, as well as the preparations that individuals are making for their retirements. One of the key aims was to identify the standard of retirement that savers are on course to enjoy and just how far away they are from the retirement that many dream of.

Savers have responded by stating that in order to enjoy a comfortable retirement, they would require £23,457 per year as an income from their savings and pension. That target would need a total fund of £469,140 from which savers could draw down five per cent over 20 years.

Based on current savings levels however, Brits are only on course to build a retirement fund worth £120,213, meaning that it could only support the desired annual income for five years before becoming exhausted.

Experts at True Potential believe that Britain urgently needs to rediscover its appetite for saving and investing if those aspirations are to be met.

The effects of the financial crisis, low interest rates, and easy access to high cost credit through payday loan companies are blamed for the creation of today’s Savings Gap – the difference between what people need to live comfortably in retirement and the amount they are actually on course to receive. This has been compounded by decades of poor financial education and complicated regulations.

Since August 2013, True Potential has asked more than 8,000 Britons about their personal finances and provisions for retirement. The findings clearly show that a crisis in old age is looming with people saving barely a quarter of the amount they will need to live comfortably.

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