Retirement savers are facing a financial crisis when they give up work – and will spend the rest of their lives with just £16 a day to spend on their living costs.
Millions face poverty in retirement because they are not saving enough and borrow too much, says a study by financial advice firm True Potential.
The study looked at the spending habits of 6,000 people and found most are saving less than a quarter of the amount they need for a comfortable retirement.
Recent economic problems, inflation and low interest rates coupled with high borrowing costs from payday lenders have led to a massive savings gap opening that will mean pensioners will have to look to the state for hand-outs if they can ever afford to retire, says the report.
Savings gap revealed
Like many other surveys by financial firms encouraging people to save more, the firm asked savers how much money they think they would need to finance a comfortable retirement.
A third reckoned an annual income between £16,000 and £25,000 a year would suffice.
That would need a pension fund of £400,000 to give an average £20,000 a year income for 20 years – but to accumulate that wealth; someone would need to save almost £8,900 a year over a 45 year working life.
The research showed a huge savings gap as:
- Workers are only saving an average £2,580 a year in a pension
- The average retirement fund at this rate of saving is £116,000
- Over 20 years, the income generated from a fund of this size is just £16 a day
The savings gap is worse for women, the report found, as men save an average £3,215 a year, while women only manage an average £1,970.
Radical change needed
Spokesman David Harrison said: “The research was designed to see how much people are saving for retirement and if they were on track to meet their goals.
“Now we know the answer. They are not saving enough and this means millions won’t be able to afford to retire until well into old age or will fall short in the amount of money they need to live.
“Many are saving cash, and that habit needs to change because inflation eats away at their spending power. What we need to see is a radical change in the way people save and how much they put away for retirement.”