Employers have been urged to educate their staff about pension provision after research revealed there is “a stark gap” between employees’ expectations of their pension income and the likely reality.
The YouGov poll of 2,000 people, commissioned by HR consultancy Hewitt Associates, shows that the average worker had an “expectation gap” of £50,000 in their pension savings, adding up to a total of £1.2 trillion nationally.
This gap has increased by 50% since the same survey was carried out in 2004, which Hewitt attributed to increased longevity, the higher cost of living and less generous pensions.
The latest survey suggests that a 43 year-old (the average age of non-retired respondents for this year’s survey), earning an average salary of £25,000, paying 5.9% of their salary into a pension scheme and retiring at the age of 63, expects to earn £15,300 in retirement. But, under these terms, Hewitt calculates they could only expect to receive less than £5,900 a year from their personal pension saving in current wage terms.
Even where individuals also receive a full earnings-linked state pension in addition to their personal pension saving, they would need to either work beyond the age of 70, or increase their pension contributions to more than 19%.
Lynda Whitney, pension consultant at Hewitt Associates, said employers must do more to educate their staff about pensions to avoid a “catastrophic shortfall”.
“Addressing the problem at the basic level is just one of the ways of starting to solve this problem,” she said. “Government and employers have a responsibility to find ways of increasing general awareness or understanding, or they face the risk of sleepwalking into a potentially catastrophic shortfall in retirement funding.”
Writing in Personnel Today earlier this month, Joanne Segars, chief executive of the National Association of Pension Funds, warned that pension provision should be high on the agenda for the new government.