We all know that we should be saving as much as possible for retirement, yet with so many other things sapping our financial reserves, it can be difficult to put enough aside. This could perhaps explain why the proportion of those saving adequately for retirement has stalled for the first time in three years.
Growth in retirement savings steadies
A new report from Scottish Widows has revealed that retirement savings levels are showing signs of steadying, despite the fact that so-called final salary pension provision is falling. The figures show that 56% of respondents are now saving adequately for later life, unchanged from a year ago, with the proportion having previously risen every year since 2013.
Unfortunately, the latest levelling off looks set to continue, with 58% of respondents believing they won't be able to save any more in the next 12 months than they do now. This could mean that 44% of respondents will remain below sufficient savings levels for at least the next year, and the longer they're below target, the harder it could be to make up the shortfall in the future.
Perhaps even more worrying is the fact that retirement readiness among the 40-49 age group is actually falling, despite this being the group who potentially has just 20 years (or fewer) to catch up before retirement. Indeed, 53% of that age group currently have adequate savings levels, down from 57% a year ago, tying with the 30-39 age group. However, those in the latter group have far more years to make up for it, and their readiness is also increasing, with the figure having risen from 52% last year.
Lack of saving
There's also been a continued fall in the proportion of those relying on final salary (or defined benefit) pensions for their main source of retirement income, which makes the lack of saving even more worrying. Currently, 24% of respondents expect to rely on this kind of pension, down from 28% last year and well below the 36% first recorded by the report in 2005.
Without a final salary pension, saving towards a defined contribution scheme – typically the default scheme for most workplace pensions – becomes even more vital. The fact that relatively few are prepared poses cause for concern, but even more worrying is the fact that the proportion of those not saving for retirement at all remains largely unchanged at 18%, down only slightly from 19% a year ago.
Furthermore, the age at which people think they can comfortably afford to begin saving for retirement has risen to 29.3, up from 28.9 last year, when really the age needs to be falling to make it easier for people to save sufficiently.
The increasing age that people start saving also makes it far less likely that they'll be able to retire at their preferred age with their preferred income: the age at which people hope to retire continues to fall (this year standing at 62.5, down from last year's 62.7), while at the same time the average income people believe they'll need for a comfortable retirement has increased to £23,990 (up from £23,254 in 2015).
This is despite the clear difficulties many people have in saving – if retirement dreams are to match up with reality, saving for the future needs to become a higher priority.
Auto-enrolment is key
However, the ongoing success of automatic enrolment could hopefully fuel a shift in priorities, and ideally improve the situation in the coming years. When looking solely at those covered by the initiative, the proportion of people saving adequately has actually increased in the past 12 months to 43%, up from 39% last year. Given that all eligible employees should be enrolled in a workplace pension by the end of 2018, it's hoped that savings levels will begin to ramp back up in the future.
"With three solid years of improvement behind us, it is disappointing to see that savings levels are starting to plateau," Robert Cochran, retirement expert at Scottish Widows. "Particularly worrying is the fact that savings levels among those in their 40s drop off at a time in life when retirement may be within 20 years.
"The light at the end of the tunnel in this picture is the long-term impact of auto-enrolment, which is clear to see from our 12 years of research. Auto-enrolment has already brought six million new workplace savers into pensions and with the minimum contributions for employers and employees set to rise in coming years, we expect average levels of savings continue will rise."
If you've yet to start saving for retirement, don't delay any longer – read our retirement guides to find out more and start building your nest egg for the future.
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