Nine million workers over 45 are sleep walking into retirement ‘baffled by pensions’
Nine million workers aged 45 and over are sleep walking into retirement as they are baffled by pensions, a report reveals.
Almost two-thirds – 8.9 million people – don’t know how much they need to save for a comfortable retirement, while 5.1 million have no idea how much they have already saved into their pension pots.
Two-in-five mid-life employees said they were unaware of how much state pension they will receive and when, while a quarter didn’t know if they would be eligible for any state pension at all.
The current full state pension, for those reaching pension age from April 2016, is £168.80 per week, or £8,777 per year.
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This is based on having 35 years of full National Insurance contributions – although many people are finding they are due a lot less.
These are workers who have been contracted out of the state pension, paying lower NI contributions, with more cash going towards building up their workplace pension.
The pension freedoms, introduced in 2015 to give people more flexible access to pensions pots, have added to confusion. Almost two-thirds of over 45s don’t know what the pension freedoms mean for them and two in five don’t know what type of pension scheme they are saving into.
It could be a defined contribution scheme, which will enable them to access their pot flexibly, or a defined benefit scheme – often called final salary – where they get a pension income from their employer based on their salary and length of service.
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The study, by Aviva, also highlights it is never too late to save.
Based on the average UK salary of £28,000, the firm calculates an employee aged 45 today with no savings, could build a pension pot of £56,100 by the time they reach 65.
That is with minimum contributions of 5% from a worker and 3% from their boss. A pot that size would give a typical 65-year-old an income of around £2,500 per year, or £208 per month.
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Lindsey Rix, of Aviva, said: “Millions of mid-life employees are flying blind, and fast, towards their retirement. At the same time, these employees are calling upon their employers for help.
“Without a clear picture of what they currently have saved or might need to save for a comfortable retirement, our findings show many UK employees are approaching retirement with their eyes closed – with no realistic idea of how near or far they are from their destination.”
