24th April 2015
Young people are feeling optimistic about their retirement, believing they will have savings of £95,000 despite three-fifths not yet saving into a pension.
A survey by NOW: Pensions, shows the average 18-to-35 year old believes they will retire with £95,000 in their pot. Men are more optimistic, believing they will have accrued £111,000 compared to women who believe they will have saved £82,000.
This optimism comes despite 53% of 26-to-35 year olds saying they are not saving into a workplace pension scheme. For 18-to-35 year olds the figure increases to 65%.
The survey is further proof that young people have unrealistic expectations of retirement savings, believing they can save a significant while saving minimal amounts in to their workplace pension.
NOW: Pensions says that a £100,000 pot would buy an annuity – which offers an income for life – of just £5,000 and £6,000 of income a year.
In order to build a pot of £100,000 a person would need to save £120 a month over 30 years and £70 a month over 40 years, including investment growth of 5% a year.
However, of those young people who have started saving the average sum being put aside is just £22 a month. This would build up a pot of just £18,000 over 30 years and £56,500 over 40 years, again assuming 5% investment growth.
Morten Nilsson of NOW: Pensions said: ‘Auto-enrolment will go a long way to getting young people into the savings habit but the sooner they start saving and the more they set aside each month, the easier it will be.
‘While a £100,000 pension pot seems like a healthy amount, men aged 25 today are likely to live until they are 88 and women are likely to live until they are 91, which means that this pot has to fund around two decades of retirement.’