Almost 3.4 million pension savers could retire with more than £225k in the 2050s according to the latest research from Aviva who are calling on the government for a ‘blueprint’ of pension savings support.

Key Figures:

• Almost 3.4 million 32-40 year olds saving into their defined contribution pension could accumulate £225,000 or more in pension savings by the time they retire in 2050

• Although significant, this wealth is unlikely to provide a moderate retirement income according to Retirement Living Standards (PLSA)

• Majority (64%) of those on middle incomes due to retire in the 2050s say that they do not know how much they need to save to achieve their desired retirement income level.

• More than half (52%) say they “wouldn’t know where to start” when it comes to planning for their retirement

• The majority (72%) want unbiased advice; but just one in ten (10%) of those on middle incomes retiring in the 2050s have taken advice.

• Paying an extra 2% into a pension each year, could increase total pension pot by £56,000

Aviva, as one of the UK’s leading pension providers, has called on government, regulators, and the wider industry today to work together to develop a blueprint of the support those retiring in the 2050s need, to overcome the challenges they face, before it is too late.

Working with UK economics consultancy, WPI Economics, Aviva has today published a new report: ‘Preparing for and retiring in the 2050s’. This report analyses the challenges facing those who are set to retire in the 2050s – aged 32 to 40 today – and explores the support and policies they need to manage their wealth in later life.

Drawing on new evidence and analysis to understand what retirement will look like for future retirees, the report examines pension savers’ knowledge and understanding of how much they need to save to retire comfortably, how to invest their money, and where to go for help and guidance so that their pension wealth lasts throughout retirement.

The study reveals that a typical middle-income earner, contributing 8% of earnings into a defined contribution pension throughout their working life, could retire with a pension pot of £225,000 or more in the 2050s. Although significant, this level of wealth is unlikely to provide someone with a ‘moderate income’ in retirement, according to the Retirement Living Standards (PLSA).

Just under one in five (19%) say they feel completely or somewhat prepared in terms of how they will fund their retirement. Most (64%) say they do not know how much they need to save into a pension to realise their desired retirement income level, and over half (52%) would not know where to start when it comes to planning for their retirement. Few know that paying an extra 2% into their pension each year, could increase their total pension pot by £56,000 by the time they retire.

The report highlights the support this new mass market of savers with defined contribution pensions will need to navigate incredibly complex decisions about how to convert their pension wealth into a decent income stream throughout retirement. Key to this is transforming professional support, from introducing simplified and hybrid advice for defined contribution pensions, to delivering more effective, personalised communications and guidance, and developing a new approach to whole-of-retirement planning.

Doug Brown, CEO of UK & Ireland Life at Aviva says, “The pension landscape has changed significantly over the past decade, but the introduction of important initiatives like automatic enrolment in 2012 and pension freedoms in 2015 have not yet been matched by the wider support needed to help people make the most of the opportunities available to them. This needs to change and change quickly if we are to help future retirees."

“Almost 3.4 million people are expected to retire in the 2050s with accumulated pension pots of more than £225,000. The vast majority of these will need financial advice, and everyone will need robust, well-designed professional support in their decision-making and planning, but the majority say they have no idea where to begin. Despite this, there is no clear vision of the support people need, and consequently policy is piecemeal and insufficient – leaving savers at risk from poor decisions. Government, regulators, and industry need to work together to develop a blueprint of the support that pension savers need and take steps to put that support in place, so future retirees are able to make better decisions and achieve more positive retirement outcomes.”

Key actions

Aviva has set out a list of key actions for government, regulators, and the wider industry, to help support pension savers today and future retirees, which include:

1 - Transform professional support to make it work for this new mass-market for wealth management:

• Set a policy ambition that defined contribution pension savers (particularly those retiring on more than £200,000 pension pot) take up some form of professional advice.

• Focus the current review of the advice framework (3) on what support is needed to properly serve this new mass market, for example simplified advice for pensions.

• Remove regulatory barriers to allow providers and other regulated entities to deliver more effective support, such as personalised guidance.

• Promote the delivery of pension advice and guidance through workplaces.

2 - Set a clear roadmap for expanding auto-enrolment over the next decade:

• Deliver the 2017 auto-enrolment review which recommended lowering the age threshold for auto-enrolment from 22 years to 18 and removing the lower limit of the 'qualifying earnings band,' so that contributions are paid from the first pound earned.

• Sustainably increase minimum pension contributions above 8%. Aviva believes, if it is affordable, employees should aim to save at least 12.5% of their salary towards their pension every month. They do not have to do this on their own because employers make contributions on their behalf, and they get tax relief on the money they put in.

3 - Deliver Pensions Dashboards Programme (PDP):

• The PDP is a significant opportunity to help people make sense of their retirement savings and take action – such as the consolidation of small pots - to optimise their chances of good retirement outcomes.

4 - Develop a new approach to whole-of-retirement planning and support:

• Develop guidelines for the effective management of defined contribution wealth throughout the whole of retirement.

• Encourage providers to work with their customers to develop a whole-of-retirement plan.

• Develop and pilot Later-Life MOTs to engage retirees at critical decision points.