Too many people have unreasonable expectations of how much income they will need in their retirement, according to new research from a leading financial firm.
This means just 6% of workers are on track for the retirement they expect, says the report by Aegon.
The study shows that in less than a year, people are expecting their annual retirement income to rise from £35,000 to £41,000.
While a third of people are more confident about their retirement finances following the government’s major overhaul of pension rules from April 6, 2015, only half have checked how their pensions are performing and only 11% manage their retirement money online.
Aegon’s second UK Readiness for Retirement report reckons although many people are expecting more cash to spend in their later years, most reckon they have a guaranteed £18,000 – which falls £23,000 short of the sum they want.
Failing to save enough
David Macmillan, the firm’s managing director, said: “The Chancellor really has changed the rules radically to give savers better access to their pension cash. This will give people better options on how to invest and the opportunity for better returns.
“However although people may feel better off because they can control their money, they are mistaken if they think the changes will give them more cash. The only thing that will do this is saving more before they retire.”
Besides failing to monitor the performance of their retirement savings, many people approaching retirement had no idea how much state pension they were likely to receive.
Two-thirds did not know the current maximum state pension is £113.10.
Around a third significantly over estimated the amount they are likely to receive, which means they think they have more retirement cash to spend than they will receive.
The survey also found few people maximised the value of their savings by keeping an eye on how their money was performing in pensions, ISAs and savings accounts.
Less than a fifth confirmed they had reviewed how their savings were performing in the past six months.
However, one bright point was that people are saving more since the ISA limit was increased in July. Average ISA savings jumped from £8,200 a year in April.
Consumer finance expert Sue Hayward, Consumer expert said: “The government has rewritten the rules on pensions and people are expecting a retirement income of £41,000, which is nearly twice the average wage.
“In reality, half of us do not save for our retirement and another quarter save less than 3100 per month. For many their retirement dreams will be shattered when they realise how much cash they really have to spend once they give up work.”