A £12,000 annual retirement income shortfall awaits workers making minimum pension contributions
- The average worker wants to retire with an income of £48,868 per year, but will fall short by a quarter of that amount, according to Royal London research.
- To help employers support employees with their financial future Royal London offers a suite of tools that help employees consider pension contributions, retirement income and lifestyle goals, and later life support needs.
The average worker is on course to miss their target annual retirement income by around £12,000, according to new research from Royal London, the UK’s largest mutual life, pensions and investment company.
According to a study* of 4,000 non-retired respondents, the average pension saver hopes to retire on an annual income of £48,868, including the full state pension which is currently £11,542.
However, many are set for disappointment, according to new research from Royal London. A 22-year-old worker with a starting salary of £24,0001, making the minimum 8% of pension contributions (from the employer and the employee), receiving a 2.5% annual pay rise and annual compounded investment growth of 5% after fees, would leave the workforce at age 67 with a pension pot of approximately £468,000, if they’d been paying in since day one of their employment. Including the state pension, this would provide them with an annual retirement income of approximately £36,600 – £12,200 short of the desired £48,8682.
To enable employees to get a better sense of what they need to do to achieve the retirement income that they aspire to, employers have a key role to play in helping their workforce navigate the options available.
To help employers support employees with their long term financial resilience, Royal London has unveiled a range of tools that employees can use as they consider what their pension contribution amount should be, whilst making it easier to identify their retirement income and lifestyle goals, and what specific support they might need in later life. These tools are all available through Royal London’s Financial Wellbeing Service, which is free for Royal London workplace pension customers.
Rory Marsh, Workplace Pension Director, Royal London said:
"This latest research shows that, despite the majority of employees being enrolled in a workplace pension, the reality of what those savings add up to does not meet the kind of income many of us aspire to in retirement. We’ve got more to do as an industry to help savers change that retirement reality.
"The guidance tools we have introduced demonstrate Royal London's aim to work with employers to encourage their employees to build their financial resilience.
"Through these resources, and our broader support for employees, they will be better equipped to plan effectively for their ideal future, ensuring a more secure and fulfilling retirement."
The suite of tools has been designed to guide, support, and encourage employees to take control of their long term financial planning, ensuring peace of mind for themselves and their families.
The Pension Contribution Tool is a resource for employees whether retirement is still some way off or fast approaching. Recognising the importance of considering current pension contributions, this tool allows employees to input specific data to calculate how much they can afford to contribute within their current budget. It also illustrates the potential difference increased contributions could make to their pension savings.
The Retirement Income and Lifestyle Planner helps employees build a personalised plan, offering a clear picture of potential retirement income from pensions, property, and other savings. This tool illustrates how various changes could help employees reach their retirement goals and provides the option to revisit and adjust the plan to stay on track. By offering a holistic view of retirement planning, it helps employees to make comprehensive and informed decisions.
The Later Life Guidance Service offers comprehensive tools and support to help employees with critical aspects of planning for later life. This service includes:
- Writing a will
- Passing on pension savings
- Planning for care
- Setting up a power of attorney
- Funeral wishes
For further information please contact:
Nicki Parry, PR Manager
- Email: nicki.parry@royallondon.com
- Mob: 07919 170 043
Notes to editor
Royal London multi asset propositions are available in insured form (Governed Range) and as funds on platforms (Global Multi Asset Portfolios) to cater for different customer and adviser needs.
*,1,2 Figures are from the Royal London Workplace Pensions Research report.
Royal London’s workplace pensions research was conducted between 31st July and 5th August 2024 on a sample size of 4,000 UK adults of working age with a pension and 500 UK adults who have retired who have a pension.
About Royal London
Royal London is the largest mutual life, pensions and investment company in the UK, and in the top 30 mutuals globally*, with assets under management of £169 billion, 8.5 million policies in force and over 4,400 employees. Figures quoted are as at 30 June 2024. Learn more at royallondon.com.
*Based on total 2022 premium income. ICMIF Global 500, 2024