Growing pension incomes should be a warning to put more money aside for retirement not a reason for giving up saving believing what you have is enough.
There’s a belief that the retired have never had it so good, especially as those with private pensions are more than 1.5 times better off than those without, according to government statistics.
But lurking behind the headlines is a stark truth that someone saving 8% of their salary into a pension each year of their working life will only end up with a retirement income of 15% of their final salary.
Private pension gap
The Office of National Statistics says retirement incomes have increased faster than those of the non-retired over the past 40 years.
But although savers with private pensions tend to have higher incomes in later life, the gap for those without private pensions is growing.
Nigel Waterson, chairman of the Equity Release Council, explains that saving is just one pillar of retirement income, and that homes should be factored into the equation.
“The figures reveal the extent to which people have become reliant on private pensions as a source of income in retirement, with data suggesting that private pensions alone were responsible for over half of the increase in the income of retired households between 1977 and 2016,” he said.
Taking property into account
“Such a reliance is a concern when the future viability of workplace pensions as a source of retirement income is assessed. Recent findings from our research highlighted that those on defined contribution schemes making contributions of 8% throughout their working life, can expect to retire with a pension of only 15% of their final salary – only one fifth of the pension of an identical worker in a final salary scheme. As a result, millions will face severely reduced retirement incomes.
“At the same time, older Britons have seen huge increases in the value of their homes, with total homeowner equity in England owned by over-55s reaching £1.8 trillion in 2016.
” If the next generation of retirees are to enjoy a more comfortable way of life in retirement, it is vital that housing wealth is taken into account when planning retirement.”
