Young people expect to retire with £95k pension pot

Posted by Michael Bolt in Personal Finance on 27 April 2015 - Michael worked as a Credit Analyst at checkmyfile until 2015

Young people belonging to ‘Generation Y’ (those born roughly between the early 1980s and early 1990s) believe that they will retire with an average pension pot of £95k, despite the fact that nearly three fifths have not started saving towards their pension fund yet, according to research conducted on behalf of ‘Now: Pensions’.

Men were found to be more optimistic about the amount of money they will have to retire on, expecting that they will have saved £111k towards their pension pot, whereas women were more pessimistic and expect to retire on £82k. If an annuity (which produces a fixed annual retirement) was bought with a £100k pension pot, this would buy a fixed income of between £5k and £6k a year.

Despite the size of the pension pot individuals expect to have to retire on, 53% of 26-35 year olds stated that they are not saving into a workplace pension scheme, with some 65% of 18-25 year olds admitting that they are yet to begin saving.

The ‘Now: Pensions’ research is the latest in a string of research highlighting the fact that young people are putting aside nothing or minimal sums for retirement, while holding idealistic hopes of the amount they will have saved.

The average salary young people said they would have to earn before being able to afford to make a pension contribution is £26,836. Among those who have begun to save towards their retirement, the average amount being set aside each month is £22.

In order to achieve a pension pot of £100k, it was calculated that savers would need to set aside approximately £120 each month if they saved over a 30 year period or £70 per month if they saved over a 40 year period - including investment growth of 5% per year.

Assuming an individual was saving the average amount of £22 per month and this level continued, this would result in a pension pot of £18k assuming 30 years of saving and £56.5k assuming 40 years of saving.

Morten Nilsson, of ‘Now: Pensions’, believes that the launch of the government’s new auto-enrolment scheme will encourage young people to begin saving for their retirement. Nilsson said: “Auto enrolment will go a long way to getting young people into the savings habit but the sooner they start saving and the more they set aside each month, the easier it will be”.

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