New research has highlighted a gulf between expectations and reality of individuals regarding their pension schemes.
A survey of 1,000 people of working age, conducted by consultancy Hewitt Associates, demonstrates an alarming mismatch between what people think they can reasonably contribute to their retirement fund and the eventual income that such a payment may result in.
The results show that if a system of compulsory contributions were introduced, the majority of people would currently expect to contribute 5 to 10 per cent of their salary and for that receive £10,000-15,000 a year during their retirement in current terms.
However, according to Hewitt data, a 35-year-old paying 5 per cent of their salary into a defined contribution scheme and retiring at the age of 65, could expect to receive less than £5,000 a year in current wage terms, revealing a startling gap between expectations and the reality. In order to earn £10,000-15,000 a year a person of this age would need to either work beyond 80 or increase their contributions to more than 20 per cent.
Raj Mody, pensions consultant at Hewitt, said: “People are not making sufficient financial provision for their retirement. Our research highlights a substantial gap between what their expectations are and the reality of the situation.
“With no miracle solution available, individuals have to accept a triangle of compromise: a combination of retiring later, paying more into a pension during your working life, and taking lower benefits on retirement. While none of these alone can solve the problem, by accepting a compromise we can avoid the predicted crisis.”
Further results also show that 70 per cent of the UK working population aged under 35 do not understand the benefits they can expect from the state, while only 39 per cent are aware of the benefits they could expect from their employers.
Mody adds: “Simply giving people more information will not solve this problem. People need to understand the options available to them, and the employers’ role in this could be advantageous to all involved.”