People over the age of 50 are “sleepwalking” into a pension crisis by over-estimating how well-off they will be in retirement, research has found.
A report by the Institute for Fiscal Studies (IFS) and the National Association of Pension Funds (NAPF) found that a third of people aged between 52 and 64 have no idea what their workplace pension income will be in retirement.
It also found that six in ten people over the age of 50 who are still in work have not yet thought about how many years of retirement they might need to finance.
The NAPF said the findings mean that millions of workers will be poorer than they think when they stop working. Joanne Segars, the pension group’s chief executive, urged people to start saving more and said their pension pots are unlikely to “stretch far enough”.
The study found that women in their 50s believe they will live until they are 84, when their life expectancy is 88. Men, meanwhile, predict they will live until 83 when their life expectancy is 85. The fact that people are “under-shooting of life expectancy” means that the money they save for retirement will have to stretch further, the report said.
On top of this, people are still not saving enough.
The report found that on average people in so-called defined contribution workplace pension schemes aged between 50 and 64 would need to see their pot make investment returns of 77 per cent to reach the income they expect in retirement. The average UK pension fund makes annual returns of just 4.3 per cent.
Ms Segars said: “Fortunately, people are going to live longer than they think, but they are not planning for it, so they might find their savings and pension do not stretch far enough.”
“Millions of people are within a decade of their state pension but have still not thought about how long their retirement might last. It’s worrying that so many over-50s are sleepwalking into their old age and are expecting to be better off than they will be. It does not help that the annuity market has become so tough.”
She said that the average saver with a defined contribution pension is being “over-optimistic”. “They need to see their pension pot grow by almost 80 per cent to meet their expectations. That is a huge ask if they are only a few years away from their retirement party,” said Ms Segars. She added: “It is not too late for the over-50s to take some control of their retirement plans by adjusting the amount they save, or how long they are prepared to work for.”
Tom McPhail, head of pensions research at Hargreaves Lansdown, said that the research shows that people need to put more money aside. “Generally investors under-estimate their life expectancy in retirement and, in order to receive the income they would like, investors need to substantially more money in their pensions,” said Mr McPhail.