Do you face £110k less at state pension age? ‘Sufficient saving’ delay can impact retirees

Martin Lewis outlines pension scheme for 16-21 year olds

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It could mean retirees end up with £111,620 less to fund their retirement, according to new analysis from Canada Life. The findings, published exclusively by today, reveal that an individual on a £25,000 salary saving 15 percent into their pension from the age of 30 can expect to have accumulated £239,186 when they reach their state pension age.

However, should the same person only save the minimum auto-enrolment contribution of eight percent, they will have accumulated £127,566 at state pension age.

This means they would have more than £100,000 less in their private pension pot.

According to Canada Life, a new wave of retirees is growing, and it is likely to disrupt the advice market.

These so-called “Late Financial Bloomers” are likely to secure their financial stability later in life.

This is due to later access to homeownership, as well as getting married and having children later in life.

As such, they potentially also have less time to contribute to their private pension, and accumulate wealth for retirement, the research found.

A major factor in the growth of this group is the maturing of “Generation Rent”.

Over the last 10 years, the age at which people have a mortgage has shifted from 34-years-old to 44-years-old.

Generation Rent, meaning those born between 1981 and 2000, are expected to have paid around £53,000 in rental costs by the age of 30, according to a 2016 study by the Resolution Foundation.

This affects the group’s ability to accumulate wealth and shifts their journey towards and through retirement, Canada Life said.

Andrew Tully, technical director at Canada Life, told “Delays or obstacles in making sufficient savings can have a huge impact on the amount of money available for retirement.

“Auto enrolment has done a great job by getting millions of people into the savings habit but it’s just the start.

“We need to encourage people to save more than the minimum amount.

“The miracle of compound interest means that relatively small increases made today can provide a significant boost to the final pension pot.

“As the number of Late Financial Bloomers grows over the next 15 years, they will need to think and plan differently for their retirement.

“Financial advisers and the industry can work together to provide the advice and solutions this new generation of retirees will need.

“Helping them to achieve their retirement goals.”

Auto-enrolment doesn’t apply to everyone, for instance there is an age and a minimum earnings limit.

Earlier this week, NOW:Pensions urged the Government to lower the age of automatic enrolment from the age of 22 to 18.

Speaking at the Professional Pensions Defined Contributions Digital Event on Tuesday, Adrian Boulding Director of Policy at NOW: Pensions said: “Those early years of contributions are the most valuable, as they gain from over 40 years of compound interest growth through investment.

“And age 18 to 22 is also a period where for many there are less pressures on their finances, as the years of mortgage payments and raising children mostly still lie ahead.

“Getting these early contributions in can be particularly important for women, as it enables them to get a period of full contributions under their belt before family responsibilities lead to years out of the labour market or part-time employment.

“Starting earlier will help to address the Gender Pension Gap.

“Government spotted this in the 2017 auto-enrolment Review which suggested that the age of auto-enrolment should be reduced to 18.

“NOW: Pensions agrees with this proposal and will continue its work with policymakers and the AE industry to implement this measure at the appropriate time.”

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