By Daniel Hunter
Funding a comfortable retirement would leave millions of pension pots empty after just five years, according to new research.
A study by financial and technology services company, True Potential, revealed that 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.
Savers said 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.
True Potential Managing Partner David Harrison, said: “These figures show the size of the problem we face as a nation. Britain is sleepwalking towards an impoverished retirement and the reality for many in society today is that they will simply be unable ever to retire. That is a scary prospect and we should be in no doubt about the radical overhaul of financial education, regulation and culture that will be required to address this.
“The seeds of the savings gap were sown in non-existent personal finance education, overly-complicated products and a buy-now-pay-later culture that has become part of society. We have also become a nation of cautious investors, preferring to save in cash, which simply means that inflation is destroying the power of those savings every day.
“Most people describe themselves as balanced or even cautious investors and who can blamed them, after seven years of financial hardship brought on by excessive risk-taking? However this approach only means millions of people will never hit their retirement goals. The answer is not to lower our aspirations for retirement but to raise our savings game now as a country. That means far better personal finance education and far simpler products that allow savers to assess risk properly and make the right decision for themselves."
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