The Times report research and the researchers debate whether retirement is realistic. The reality is that most people do retire and find a way, but it’s not always thanks to the financial services industry.
Here’s the Times article
Many workers in their forties and fifties may never be able to afford to retire after missing out on generous pensions and still having to support their children.
Some 24 per cent of all workers think they won’t be able to afford to stop working (28 per cent of women and 19 per cent of men), according to research by the consultancy Apella Advisors — but that figure grows to 34 per cent among those aged 40 to 54.
Apella surveyed 2,000 adults in December and found that a further 19 per cent of those aged 40 to 54 believed they would only be able to retire in their seventies.
Analysts fear that millions of workers have chronically undersaved for later life, forcing them to stay in the workplace longer. The number of people aged 66 and over and still in full or part-time work is up 11 per cent in four years — rising from 1.9 million in 2020-21 to 2.12 million in 2024-25, according to HM Revenue & Customs.
James Kirkup from Apella said:
“Inadequate pension savings put many people on course for financial challenges in later life, but for younger Generation Xers this can feel particularly acute.”
He said this was because many in their forties and fifties missed out on generous defined benefit (DB) pension schemes offered to previous generations. In these gold-plated schemes, also known as final-salary pensions, your income in retirement is guaranteed and inflation-linked. They have all but disappeared in the private sector because they are too expensive to run.
But for a large part of their careers Generation X (those born between 1965 and 1980) also missed out on pension auto-enrolment, which was introduced in 2012 and automatically enrols most workers into their employer’s workplace pension. You usually have to contribute a minimum of 5 per cent of your qualifying earnings between £6,240 and £50,270, and your employer pays in 3 per cent.
Missing out on auto-enrolment early on in a career means less time for pension contributions to benefit from investment growth and compounding.
The average employee aged between 45 and 54 has £70,800 in pension savings, according to the investment platform Fidelity. Assuming they earn £40,000 a year, by the time they turned 67 that pot could be worth £235,000, with 2 per cent a year pay rises, pension contributions of 8 per cent and investment growth of 5.2 per cent a year after fees.
But a pot of that size would fall well short of the amount needed for a secure retirement.
To enjoy a comfortable retirement a single person with no mortgage or rent to pay needs £43,900 a year of post-tax income, according to estimates by the industry body Pensions UK. The wealth manager Quilter estimates that someone stopping work today would need a pot of roughly £800,000 — enough to buy an annuity which, when combined with the full state pension of £11,973 a year, would give a guaranteed income of £43,900 a year.
James Baxter from the investment firm Tideway Wealth said:
“It should be no surprise that 40 to 54-year-olds feel they have less capacity to save than those under 30. The spending pressure on Generation X, with many supporting families of children and younger adults, is probably at its peak.
“Building retirement savings is rarely a smooth process. Savers should take advantage of any spare cash as it becomes available. It can be available for couples before children arrive or much later in life when children are financially independent and spending pressure declines.”
One of the big advantages of CDC is that it gives a very stable projection of one’s likely retirement income as one’s working life unfolds. All the uncertainty that these surveys found will fall away as people will clearly see what level of retirement income, in today’s money terms, they are heading for. If it’s inadequate then at least they will have had a clear view and known for a long time that they were heading for that outcome.
How is the projection more stable? If it’s £1bn or £100,000, the investment profile will be the same, the fees largely the same, and don’t most contemporary DC pots invest without a target date, ie, they’ll draw down and not move to ‘safe’ investments at retirement, negating the primary difference between DC and CDC?
Always an interesting but worrying conversation but the figure of 43,000 seems very high given that many people do not earn that while working and paying a mortgage. What are we doing in retirement that means we need more money than when we are wrking?
Nonetheless CDC does appear to offer potential for a more secure predictable retirement than DC alone for those of us who have no or limited DB.
I agree, this is a rather doom laden analysis in my view.
My wife has a much larger pension pot than described, and has always been a more modest earner, in the average or below average range.
I can only assume the average is dragged down here by people with no provision at all?
Also £43,000 in ‘comfort’ is utterly meaningless. If housing/rent is removed from the equation how do people need nearly £3,600 a month after tax? Each?
I can only assume ‘comfort’ for some is fine dining twice a week, hampers from Harrods, a few cruise holidays each year, and a brand new Range Rover on constant PCP?
Yes fine if that’s your target, but using it as a reference point for making statements about the state of the system is silly.
So while there are some issues (aren’t there always in the pension world?), focussing on nonsense data and analysis won’t truly help resolve all the problems.
Current Inflation is running at over 3% and no sign of reducing (21 year RPI is averaging 3.87% pa) see BOE statement today.
I am delighted to see some figures outlining a destination for pension savings.
But they ignore the impact of inflation on benefits paid or reality that the
income should be based on two lives nor one. So it is certain poverty and declining standards of living for all. More than one solution is required.
You cannot rely on the triple lock being maintained let alone compare future outcomes from a DB to be fully honoured and you need a pot to buy a CDC not an excuse not to save when 60% extra is projected.
It costs £1,000,000 for a couple today at retirement age to have an indexed income starting at £42,000 pa from Legal & General which more than doubles before the second death for the majority of couples.
Who can get there? Advising a 40 year old with a spouse 5years younger would nee a current fund of £150,000 and 20% of future income and 8% net return pa or better.
So how many workers have this profile ? These are the ones who need least tax payer subsidy.
The rest need subsidy or alchemy. There is no universal solution and hopefully one day this endless debate will segment the market and design one that fits each cohort from the feckless to the privileged