If you want a comfortable retirement income, then you will have to dig deeper into your pocket, warns pension minister Steve Webb.
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He pledges the government will always put out a state pension safety net to cover basic spending, but anyone wanting to maintain their standard of living after giving up work will have to pay for life’s luxuries, he cautioned.
His remarks followed the release of a Department of Work and Pension study into retirement saving habits.
The research revealed almost 12 million workers are not putting enough cash aside for their retirement.
However, he tempered the astonishing figures by explaining 80% of them were only just off track and could easily reach the financial goals for retirement by putting a little more money into a pension.
A few pounds more
Just 8% of earners are 50% or more short of their savings objectives, he said.
“The upcoming pension overhaul will make a massive financial difference too many,” said Webb. “The report reveals many people could make a huge difference to their retirement finances by saving just a few pounds more each month.
“We do not want to make life difficult for lower earners by introducing high pension saving rates, but they still have to play a part in contributing to their own retirement finances.”
Webb suggests that instead of taking annual pay rises, all earners should divert the cash into their pensions.
“Just doing that would make a huge difference to funding a comfortable retirement,” he said.
Focus on higher earners
He report also identified three reasons why people failed to save enough for retirement –
- Not having a full working history of 35 years
- Failing to save enough into a pension
- Not contributing to a pension
So far, much of the government effort in encouraging retirement saving has been aimed at lower earners, but the research shows middle and high income workers are the most likely to under save or not save at all for retirement.
“We need to change the focus away from the average hard worker to those who are better off but are not saving as much for retirement as they could,” said Webb.
“These are the people who will see a dramatic income fall when they stop working and they need to act before it’s too late. These are the people who could divert their wage increases into pensions without really noticing a difference in their current standard of living.”
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