Pension savers falling £26,000 short each year due to one mistake | Personal Finance | Finance
Millions of Brits could be heading for a retirement shock, with many falling tens of thousands of pounds short of the lifestyle they believe they’ve been saving for. Pension experts at PensionBee highlighted a “stark mismatch” between what people expect from their retirement savings and the harsh reality they’ll face, often discovering the shortfall far too late.
Whilst it’s challenging to calculate exactly how much someone needs to save for retirement due to uncertainties around life expectancy, the Pensions UK Retirement Living Standards report indicates that a comfortable retirement requires nearly £44,000 annually for a single person.
Despite conscientious savers believing they’re on track for this lifestyle through their regular contributions, experts have found that the typical pension pot at retirement would only provide an annual income of around £18,000 – leaving a £26,000 yearly shortfall for a comfortable retirement.
This figure barely covers the £13,400 required for basic necessities for a single person in retirement.
Lisa Picardo, Chief Business Officer UK at PensionBee, warned: “Too many people are approaching retirement with expectations that simply don’t match the reality of their savings.
“The gap between what people need for a reasonable life in retirement, and what their pension is likely to deliver them as an income, is growing – yet individuals are still expected to navigate complex decisions at a time when their confidence is often lowest.”
Experts have warned that the outlook for those nearing pension age is becoming increasingly bleak, as they grapple not only with soaring living costs but also with economic turbulence and unpredictability.
Lisa added: “Without clearer information, earlier guidance and support that is easy to access and understand, many savers will continue to make short-term focused, or overly cautious, decisions that may limit their income in later life.”
The experts suggest this presents a “strong case for rethinking how retirement income is delivered”.
Although pensions remain the main source of income during retirement, the ways in which these funds can be accessed are often complicated and carry consequences that savers may not properly grasp.
Given that financial advice remains prohibitively expensive for many, people frequently opt for the most straightforward choices rather than those best suited to their financial needs and aspirations, ultimately restricting their quality of life in retirement.
PensionBee is calling for more robust and user-friendly default retirement options, increased consistency in pension tax policy, and earlier, more readily available guidance to enable people to make well-informed choices ahead of retirement.
In the months ahead, the government and Financial Conduct Authority could address this knowledge shortfall through a new targeted support framework. After a joint review of the regulatory boundary between financial advice, typically a personalised service provided for a fee, and financial guidance, which is generally free information.
One outcome of the review is a new targeted support regime. This will offer an option between financial advice and guidance, providing tailored suggestions to groups of people with shared characteristics. It’s set to launch this April.
