New research by Royal London has revealed a significant disparity between retirement aspirations and financial preparedness among the younger demographic, despite many workers starting to save earlier as a result of auto-enrolment.
According to the study, which surveyed 4,000 UK adults, two-fifths (38%) of under-35s plan to retire by the age of 60. However, seven in 10 (73%) of the same cohort admitted they haven’t worked out how much they will need to live on when they retire.
Royal London cited benchmark research by the Pensions and Lifestyle Savings Association (PLSA) which suggests that, approximately, a single person will need £13,000 a year to achieve the minimum living standard, £23,000 a year for moderate living, and £37,000 a year for a comfortable standard of living, excluding housing costs.
Royal London’s research found that, on average, those under 35 years of age predict they will need £1,086 per month in retirement – an amount that would provide a minimum standard of living.
“Being so far away from retirement, the younger generation have an optimistic view of when they’ll be able to give up work but there is a significant gap between expectations and retirement reality,” said Clare Moffat, pensions expert at Royal London.
“Two-fifths of younger adults do not plan to work beyond 60 years of age, even though they won’t qualify for a State Pension until much later, and that poses serious questions about how they will fund the type of lifestyle they want to enjoy when they’re older,” she added.
Moffat warned that although under-35s might find the idea of early retirement appealing, it can carry “significant risk” as the more of their pension pot they take earlier in their retirement, the less will be left to maintain their lifestyle in later years.
“However,” she added, “savers in their 20s and 30s have a couple of significant advantages on their side – time and compounding of their investments, which potentially enables small amounts of money to grow into larger sums over time.”
Early planning and setting realistic timescales and rates of pension saving is key, according to Moffat. “That way, savings will accumulate earlier, building wealth over a longer period of time, and giving ambitious retirement goals a better chance of being met,” she said.