UK’s 45-54 year olds set to be ‘lost generation’ come retirement

29th October 2013

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Britain’s nine million citizens aged 45-54 urgently need to rethink their pension plans or risk becoming the ‘lost generation’ at retirement.

Fund manager BlackRock, in its ‘Investor Pulse’ survey has revealed this demographic are now the most burdened by bills and the poorest savers, as the overhang of the financial crisis takes its toll.

Unsurprisingly they are the most pessimistic about their financial future and the possibility of a comfortable retirement, of any age group, as they have been hit hardest by the rising cost of living, spending 52 pence in every pound of their monthly income on bills.

They also save the least of all Britons each month, squirreling away 12 pence in every pound as a proportion of their salary, less than those aged 24-35, at 18 pence, and even less than those reaching or already at retirement age.  More than a third, at 38% are not confident that they will be able to fund their children’s’ education.

Like all of the age groups surveyed, Britain’s 45-54 year-olds have high hopes for their lifestyle in retirement, saying they would need a household income of £28,655 annually, almost twice the current national average annual income of £15,548 for a single pensioner today.

However, the study found that two thirds do not understand how much money they will need to reach this goal, and 43% of this age group claim they cannot afford to save at all for retirement. This sector of the population estimate a £294,000 pension pot is sufficient to fund their desired retirement income when the reality is they will need a pot almost twice this size at £549,000.

READ MORE: What you need to save to retire in comfort

While 40% of this age group said funding a comfortable retirement is their top financial priority, when questioned what they would do with £100 more a month, only one in five said they would save more towards retirement and 37% said they would spend more time researching holidays than planning for their retirement.

Some 70% of people within this age group are seeking sanctuary in cash deposits, with 30% intending to increase their levels of cash over the next 12 months. But the impact of inflation would see a cash pile of £200,000 five years ago worth just £169,280 today.

Tony Stenning, head of UK retail at BlackRock, says: “Our research shows that an astonishing half of Britain’s 45-54 year olds – more than four million people – have lowered their aspirations for the kind of lifestyle they want in retirement, with three in ten saying they will need to work longer to fund later life. Despite this reality check, two thirds of their savings pot is in cash and their appetite for taking any risk with their money is low. Perhaps it’s time to reassess the unintended risk that inflation and record low interest rates are having on their hard earned nest eggs, and consider investments which have the potential for higher returns and income over the longer term.”

“Because headline inflation and interest rates are so low, people underestimate the impact that inflation can have on their savings. But actually the effect of inflation today is similar to back in the 1970s. Headline rates were much higher then, but the differential between the inflation and interest rate is much the same now as back then. There is a cost to being in cash that many just aren’t aware of.”

READ MORE: Number of women saving adequately for retirement collapses to new low

However BlackRock’s research reveals that across Britain, six in ten people take financial planning seriously, and this in turn means they are twice as likely to feel in control and confident about their financial futures, than those who do not.  Additionally, 69% of Brits who use a financial adviser feel confident in their savings and investments decisions compared to 46% of those who don’t.

Research from financial adviser and fund broker Hargreaves Landown found that for someone aged just 22, to have a 75% chance of an ‘adequate’ pension, contributions from earnings would need to increase from 8% to 12%. For a 40 year old, contributions would have to increase to 26% of earnings.

 

How much do you need to save?

Based on a 22 year old and a 35 year old saving into an auto-enrolment pension scheme at the default contribution rate of 8%, supplemented by a full state pension entitlement. The figures below from Hargreaves Lansdown show the drop in income as they make the transition into retirement at age 68, as well as the additional contributions they would have to make if they want to hit their target replacement rate income in retirement.

Top of Form

Age 22
Salary Contributions per month at 8% Total combined state and private pension income Replacement rate “Desired” replacement rate Additional funding required pm Recommended total contribution

£15,000

£62.21

£11,161

74%

80%

£                    14.25

£                    76.46

£30,000

£162.21

£17,047

57%

67%

£                    51.88

 £                  214.10

£50,000

£238.55

£21,539

43%

50%

£                    58.81

 £                  297.36

£100,000

£238.55

£21,539

22%

40%

£                  313.69

 £                  552.24

Age 35
Salary Contributions per month at 8% Total pension income Replacement rate “Desired” replacement rate Additional funding required pm Recommended total contribution

£15,000

£62.21

£9,058

60%

80%

£                  117.52

 £                  179.74

£30,000

£162.21

£11,561

39%

67%

£                  341.05

 £                  503.26

£50,000

£238.55

£13,472

27%

50%

£                  460.43

 £                  698.98

£100,000

£238.55

£13,472

13%

40%

£               1,059.55

 £               1,298.10

1 thought on “UK’s 45-54 year olds set to be ‘lost generation’ come retirement”

  1. Anonymous says:

    45-54s often have teenagers to keep and mortgages to pay. Real incomes are declining. The previous govt means tested pension benefits – penalizing savers. Real interest rates are negative – penalizing savers. We might see savers bailed in to a new bank failure.

    With all these dis-incentives, why expect anyone to save ?

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