A generation sleepwalking into old age POVERTY

You may have a pension — but are you saving enough?

A GENERATION under the age of 40 is sleepwalking into retirement poverty — despite record numbers saving into a pension.

Britain’s thirtysomethings are likely to end up with a private pension of just £271 a month — barely enough to cover household bills, Money Mail has found.

And concerns are growing that many just don’t realise that the amount they are putting aside for retirement will leave them with a paltry income.

Yesterday, high-profile think-tank the Institute for Fiscal Studies warned that younger savers faced retiring on much lower pensions than their parents. By contrast the current generation of pensioners is better off than ever because these workers benefited from generous final salary pensions.

The IFS called on the Government to introduce measures such as limiting the generous state pension increases for current retirees to level the playing field between generations.

Director Paul Johnson says: ‘We have achieved an astonishing turnaround in the incomes of pensioners over the past three decades, but the longer-term future looks very uncertain. Those now in their 20s, 30s and 40s may well end up with lower incomes in retirement than their parents.’

Since 2012, companies in the UK have been forced to enrol all eligible employees into a company pension.

So far, 5.4 million workers who had never previously saved for their retirement have been enrolled into a scheme.

But just because they have a pension for the first time, doesn’t mean it will provide them with an adequate old-age income.

Startling figures show the average amount being saved into a pension has halved in just two years. On average workers are putting aside £4.70 for every £100 they earn. It’s likely to leave many with a nest egg of just £56,000 — that’s an annual income of £3,252.

In reality, most will need at least £10,000 a year on top of the state pension. In order to have a chance of achieving this, the average worker would have to contribute £8 for every £100 they earn (8pc) between the ages of 22 and 65.

Nearly two thirds of those aged between 22 and 29 and 40 pc of those between 30 and 39, save just 2pc of their income or less, according to the Pensions Policy Institute.

Independent pensions expert Steve Bee says: ‘We are going to see a whole generation of people who cannot afford to give up work. Instead they will be hanging on to their jobs for dear life well into their 60s and 70s.’

Last week, figures from the Office for National Statistics showed that the average contribution into a pension had plummeted from 9.1pc in 2013 to 4.7pc today. This fall was blamed on the introduction of auto-enrolment, a government-run scheme to force every employer to offer their staff a pension. Anyone over 22, and who earns more than £10,000 a year, qualifies. By 2018 it will have forced even the tiniest employer, such as a family hiring a full-time nanny or gardener, to offer a pension.

In this respect it’s been a success, with 5.4million new savers contributing to a pension. There is a problem, though. The amount being paid in is nominal. At present, firms must save at least 1pc of a worker’s income between £5,824 and £42,385. The worker must pay in 0.8pc. They will also receive 0.2pc as a top up from the government, in the form of tax relief. From October 2018, employees will be saving 4pc of their earnings, and will receive 3 pc from their employer and 1 pc tax relief — a total of 8pc of salary.

Calculations for Money Mail by pension scheme Nest reveal that a 35-year-old worker, earning £26,000, who made the minimum contributions, would build up a pension pot worth £71,000 by the time they retired at 65. That translates into an income of just £4,000 a year.

Pension experts believe you need around two-thirds of your pre-retirement income to enjoy a good standard of living in old age. So someone on the average income of £27,000 a year would typically need around £18,000 to get by in retirement. A worker earning £27,000 who started saving at 25 would have to put away £315 a month to build up a pension worth £18,000 a year — including the state pension.

Someone who started saving at 30 would have to contribute £360 a month, £416 if they started at 35 and £495 a month if they began at 40, according to figures from investment firm Hargreaves Lansdown.

Savers can increase their own contributions to a company pension — but most don’t know how.

Last week, prominent trade body the Association of Consulting Actuaries called for the Government to hike contributions for auto-enrolled schemes to between 14pc and 16pc in total. But rather than increasing contributions, evidence suggests schemes have actually used autoenrolment to pay in less.

This is because all new employees are being shunted in to the autoenrolled scheme with its nominal contributions, rather than an existing scheme, which may pay in 10pc of an employee’s salary.

According to figures from the Office for National Statistics in 2013, employers paid on average 6.1 pc into a worker’s pension. But by 2014 this had plunged to 2.9 pc on average.

Fears are also growing that it could become even harder for savers to build up decent pots. The Chancellor is considering plans to axe tax breaks worth £34billion a year, designed to encourage saving for retirement.

Pensions Minister Baroness Altmann admitted the drop in contribution levels was a short-term consequence of the roll-out of automatic enrolment.

She says: ‘The good news is that increasing numbers of people are saving into a pension and contribution rates will rise significantly from 2017 onwards.

‘We will, of course, continue to monitor the situation, as we want to encourage more pension savings for the future. We need to strike a balance between short and long term.

‘People need to be encouraged to save more for later life and that is why our radical reforms to make pension saving easier, clearer and cheaper are so crucial.’

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