Latest research highlights a gulf between workers expectations and reality when it comes to their pension funds.
The survey of 1000 people aged between 16 and 64 was conducted by human resources firm, Hewitt Associates.
Few will have escaped the shock revelations of the Adair Turner report on pensions which revealed that Britain faces a £57 billion pension shortfall but many workers are still in the dark as to how much they should save for a comfortable retirement.
The results show that if a system of compulsory contributions were introduced, the majority of people would currently expect to contribute between 5-10% of their salary and for that receive £10,000 – £15,000 a year during their retirement in current terms.
This would mean that a 35 year old contributing 5% of their salary into a Defined Contribution (DC) scheme with a retirement age of 65 could expect to receive less than £5000 a year in current wage terms.
In order to earn £10,000 – £15,000 a person of this age would need to either work beyond 80 or increase their contributions to over 20%.
Ignorance of pensions issues is also a key concern. The results show that 70% of the UK working population aged under 35 do not understand the benefits they can expect from the State, while only 39% are aware of the benefits they could expect from their employers.
Raj Mody, pensions consultant at Hewitt said:
“As Adair Turner’s report highlighted, 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.”
Mody goes onto say that it is unsustainable for companies to bear the risk through final salary schemes and unrealistic for members to bear the risks through DC schemes.
The solution says Mody is to: “Meet in the middle to give employees the predictability and flexibility they desire, while taking some of the risk away from companies.”