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Are you realistic about your pension savings?

Are you realistic about your pension savings?

Category: Pensions

Updated: 20/05/2014
First Published: 20/05/2014

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 It is now over 6 months old so the content may be out of date.

It's good to approach life with an optimistic outlook, but when this positive view is applied to people's pension savings it could mean that people are over estimating what they will have at retirement.

The average person between 45 and 70 is being over optimistic about their savings, according to research from Partnership, with many expecting to have amassed a pot of £76,406. This is despite 18% admitting to having no work pension and 33% having no private provision whatsoever, while the typical pot used to buy an annuity is currently £34,000.

Conversely, people's pessimism about how long they will live in retirement is leading them towards further problems when it comes to their money lasting. The typical 45 to 70 year old thinks they will spend 16 years in retirement if they finish work when they are 65, however longevity statistics suggest men will live 18.3 years and women 21 years, so many are underestimating how long their retirement savings will need to support them.

Andrew Megson, managing director of retirement Partnership, said:

"While many people have been successfully managing their finances throughout their working lives, making choices at retirement requires a slightly different set of skills. Not only do they need to have an accurate and honest view of just how much their pension assets are worth but also determine how long theses need to last in order for them to enjoy a good standard of living in retirement.

"Choosing to spend too much each year can result in people spending their final years struggling to survive while spending too little means they may enjoy a poorer quality of life than they deserve."

The earlier you can begin saving the more you will be able to amass for your retirement, and with auto-enrolment well underway it is hoped most people's pots will be building. You don't need to put all your eggs in one basket either and paying into a tax-free ISA is also a great way to save for retirement, while having access to the funds in an emergency. Check out some of the fixed rate deals on offer, as if you are saving for the long-term there shouldn't be any problem locking your money away – and it will dissuade you from getting tempted to dip into your fund unnecessarily.

Getting into the savings habit from a young age is always desirable but it is never too late to put something towards your retirement, and it seems auto-enrolment is a good option for most ages. The Department of Work and Pensions recently reported that opt-out rates for the over 50s are higher than the general average, at 15% compared to 9%, so it looks as if people nearer to retirement are feeling it is too late to save - but a report from the Pensions Policy Institute should quash this feeling.

Studying auto enrolment and its benefits for older workers, they have discovered that over 95% of workers aged 50+ are likely to receive good value on their pension contributions from staying enrolled. So there is no time like the present, whatever age you are, to start putting something away for later life and then everyone can look forward to a happy and financially comfortable retirement.

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