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UK headed for retirement funding shortfall

UK headed for retirement funding shortfall

Category: Pensions

Updated: 08/09/2010
First Published: 08/09/2010

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The people of the UK are heading for a shortfall in their retirement funding, new research has found.

Each year of retirement for today's 17.6 million over 55s will be funded by only two years' work, according to Aviva.

These latest findings highlight the increasing trend towards people living for significantly longer, while under-saving for their lives after work.

It will mean further worries over the state of the UK's retirement industry, following research from Moneyfacts.co.uk that showed returns from annuities are at all time lows.

Today's over 55s are set to live for an average of 88 years and will typically retire six months after their 63rd birthday.

With an average of 44 years in work and a retirement lasting for 25 years, each year of retirement is funded by just under two years of work.

"Many over 55s are worried about maintaining their standard of living and as today's average retiree is looking to finance every year of their retirement with just under two years of work, these fears are justified," said Clive Bolton, 'at retirement' director at Aviva.

"This financial equation is very worrying and simply doesn't add up."

Worryingly, those starting their working life will live for longer and are likely to start working later.

Those hoping to follow in the footsteps of their parents and take retirement at 60 could be retired for almost as long as they are working, meaning each year of retirement is funded by just over one years' work.

The largest single source of income for the over 55s is the Government Pension (24%) followed by employer pensions (16%) and wages (13%).

However, as the Government has indicated that it will be looking more towards self-funding of retirement and fewer companies are offering generous pension schemes, this does not bode well for future generations.

"All these factors highlight the simple fact that as a nation, we need to save more for retirement," added Mr Bolton.

"With the high cost of living, we can't all afford to put substantial amounts away each month but even small amounts add up over the years and will help to ensure that retirement is not characterised by a struggle to survive on a tiny income."

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