A large chunk of Britons have no idea or are dramatically underestimating the size of pension pot needed for their golden years. Research last year from Finder.com found a shocking one in five adults (21 percent) predict they only need up to £50,000 for their pension pot – £210,000 less than their minimum recommended amount. This is compounded by the British public living longer and healthier lives, sparking concerns they will need more money to retire comfortably. Millennials are expected to have the highest cost of living in retirement than any previous generations due to the house price epidemic, the research from Finder.com found.
But they will most likely be working for a lot longer too.
In fact, Aviva found last year the amount of people managing to retire before the age of 65 has plummeted by a quarter in just seven years.
The state pension age is currently 65 for both men and women, but this is due to reach 66 by 2020.
By 2028, Britons are set to see this figure climb higher with plans for it to become 67.
The full new state pension is currently £164.35 per week.
As the goalposts continue to move for savers, Professor Lionel Martellini, Director of the EDHEC-Risk Institute, urged future retirees to start planning now for their golden years.
Professor Martellini spoke to Express.co.uk about how to avoid a pensions crisis in an economy where individual investors are becoming increasingly responsible for their own saving.
One of the key issues, according to Professor Martellini, is that public and private pension schemes almost always deliver replacement income which is lower than labour income.
He added: “The gap is sometimes severe.
“According to the OECD, an individual with average earnings in the United States can expect to receive merely 49.1 percent of labour income from mandatory pension arrangements when retiring.
“The replacement rate falls to 29.0 percent in the United Kingdom.
“With the need to supplement public and private retirement benefits via voluntary contributions, individuals are becoming more and more responsible for their own retirement savings and investment decisions.”
This global trend poses substantial challenges to individuals, he said, who often lack the expertise required to make such complex financial decisions.
So how could the UK prepare for a pensions crisis?
The key, according to Professor Martellini, is a combination of two things.
He said: “The pension crisis can be overcome with a combination of better financial education, to help individuals contribute early and regularly for their retirement, and better products.
“This will allow savers to invest their retirement assets in a more meaningful way.”
When Express.co.uk Kay Ingram, director of policy at financial planners LEBC, last year, she advised savers put away a percentage of salary equal to half your current age if you want to have half your salary paid as a pension by your mid 60s.
So a 20 year old needs to save 10 percent a year, whereas someone starting to save at 50 would need to put aside 25 percent of earnings on a regular basis.
Her most crucial piece of advice was the sooner you start saving for retirement, the less you need to pay in each month.