8.9 million employees aged 45 and over do not know how much they will need to save for a comfortable retirement while 5.1 million do not know how much they have already saved in their pension.
Mid-life employees are calling on their employer for more support.
Aviva analysis shows it’s never too late to save, with the average UK employee aged 45 potentially able to generate a pension pot of more than £50,000 by the time they retire at 65 from a standing start.
Millions of mid-life UK employees are sleepwalking into retirement, according to new research from Aviva UK.
The study, which looked into mid-life employees’ financial preparedness for later life, revealed 64% of employees aged 45 and over - the equivalent of nearly nine million people - do not know how much they will need to save to afford a comfortable retirement.
In addition, over five million mid-life employees (37%) do not know how much is already saved in their pension. Question marks also hang over the state pension with two in five (43%) respondents unaware of how much support they will receive from government. A further 26% do not know at what age they’ll be eligible for the state pension.
With the full new state pension currently valued at £168.80 per week, this adds up to a retirement income of £8,777.60 per year.
Table 1: Percentage of employees aged 45+ that do not know the following information
% of UK employees aged 45+ | Number of UK employees aged 45+ |
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The age at which I will qualify for the state pension | 26% | 3.6m |
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How many pension pots I have | 35% | 4.9m |
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How much I have currently saved in my private pension(s), if anything | 37% | 5.1m |
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What type of private pension scheme I have | 37% | 5.1m |
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How much my employer contributes towards my current private pension | 36% | 5m |
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The state pension provision | 43% | 6m |
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What the pension freedoms mean for me | 62% | 8.6m |
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How much I need to save before I can retire comfortably with the lifestyle I want | 64% | 8.9m |
Most employees (62%) aged 45+ do not know what the pension freedoms mean for them, while 37% do not know what type of pension scheme they have – for example whether it’s a defined contribution or defined benefit scheme.
Never too late to save
However, the analysis also highlights it is never too late to save. Based on the average UK salary of £28,000, Aviva calculates that an employee aged 45 today with no savings to date could build a pension pot of £56,100 by the time they reach 65, based on the current minimum employee and employer pension contributions under auto-enrolment alone (a combined 8% of annual pensionable earnings).
Table 2: Projected value of savings for average employee by retirement age of 65
* It’s important to note that these figures are based on assumed charges and rates of growth, which are not guaranteed. The value of investments can go down as well as up and employees may get back less than has been paid in.
Starting age Amount saved by Amount contributed Projected value of
employee (5%) by employer (3%) pension @ 65 Invest. Growth 2.4%
45 £21,840 £13,200 £56,100
50 £16,380 £9,900 £39,600
55 £10,920 £6,600 £25,500
60 £5,460 £3,300 £13,600
Employers seen as an important source of financial guidance
Most employees surveyed see their employer as a critical source of financial help in navigating the uncertainty around their pensions, with two thirds (65%) believing their employer should provide support around employees’ pensions.
Lindsey Rix, Managing Director of Savings and Retirement at Aviva comments:
“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. “As a first step, mid-life employees who are mystified by their pension savings should try to get a clear picture of what they have saved so far and how much of an income this can provide them with over the course of retirement.
For some, this may be a pleasant surprise, while for others, it could be the wake-up call that’s needed to spur them to take action. People whose pensions are in need of a boost shouldn’t be disheartened, however, as it’s never too late to save.”
Top tips to help demystify pensions for mid-life employees:
Understand where you start – before considering your plans for tomorrow it’s important to understand where you stand today. Look into your current pension savings and policy and research when you’ll be eligible for the state pension, and how much support you’ll receive
Take advantage of your workplace pension – all employers are legally required to provide a workplace pension, if we save, our employer must save with us too
Track down your pensions – moving jobs more frequently means amassing more pension pots. It can be hard to keep track of different pots, however the government offers a pension tracing service to help you track down any mystery pots
Take advantage of online planning tools - Aviva’s Shape my Future tool can give you an idea of what your retirement income might be based on your current saving habits and let you see the possible effects of making changes
Find out if there’s financial guidance available at your workplace - many employers offer employees sessions with financial advisers, it’s therefore worth checking if your employer already has these initiatives in place. Some organisations such as Aviva have introduced Mid-Life MOTs for their employees, to help employees in this age group to consider their wealth alongside their work and well being
Take professional financial advice - as the decisions you make at this time are of paramount importance to your future lifestyle.
Source: Aviva