Pay more into pension to enjoy your golden years
RESEARCH from insurers Royal London shows that four million workers in their 20s and 30s are making only minimum pension contributions.
And they may have to work until they are in their late 70s before they can retire completely with a decent standard of living.
The research looks at what would happen if someone who has saved into a pension at only the legal minimum level decides to draw a state pension as soon as they can and cuts down to part-time hours.
It considers those who are targeting a “gold standard” retirement – an income level two-thirds of what they had while working – or “silver standard”, where retirement income is half of their working income. Steve Webb, director of policy at Royal London, said: “A flexible retirement, where we can gradually reduce hours and stop work at an acceptable age, is likely to be a mirage for millions of people based on current levels of saving.
“Those who opt for a gradual retirement, drawing a state pension as soon as they can and cutting their working hours could easily find themselves unable to afford to retire fully until they are in their late 70s or beyond unless they have built up a significant private pension pot.”
Webb reckons that the answer for most people is that they will have to make higher pension contributions while working and the Government need to bear this in mind as they review autoenrolment rules.
He said: “The good news is that there is an antidote to excessive working lives and this is higher rates of pension contributions.
“We find that each one per cent on pension contribution rates takes at least one year off the number of years for which you have to work to achieve a decent retirement.
“For those who want choices in later life about when and how they retire, doing more now to build up a decent pension pot is essential.
“These findings need to be considered carefully by the Government as they review the rules around automatic enrolment this year.”