ï Key factors driving the retirement savings gap include long-term care and debt
ï Public resistance to saving due to tax complexities, mistrust of products and uncertainty about the future savings landscape
ï Lack of public awareness of importance of retirement planning
The Chartered insurance Instituteís (CII) report, ëAn age-old problem ñ developing solutions for funding retirementí, published at a CII and Strategic Society Centre seminar exploring the impact of pension rules in a changing society, estimates the UK retirement savings deficit at £9 trillion.
The CIIís report provides a comprehensive view of the retirement savings landscape. Using existing data the reportís analysis provides an insight into the savings required to fund retirement once costs associated with long-term care and debt are taken into consideration. Comment is provided by expert stakeholders from across the sector.
Steve Webb MP, Minister for Pensions, comments in the report:
ìThe next generation will face a different world, with increasing life expectancy, the decline in final salary schemes and lower annuity rates. They are going to have to take greater responsibility for saving for their retirement.î
David Thomson, director of policy and public affairs at the CII, commented:
ìThe OECD notes that currently, on average, pensioners only achieve 30% of their pre-retirement salary during retirement(1). This is significantly less than the 70% figure which the OECD believes is necessary to live adequately (2). However, living comfortably on a day to day basis is not the only consideration for pensioners. The UKís elderly are increasingly requiring long-term care(3) and many also have to pay down debts(4).
ìOur research has therefore tried to show the difference between what people are currently saving and what they will need to save to live comfortably day to day, pay for long-term care costs and pay back debt.
ìWe ran two core scenarios. The first scenario assumed that pensioners retiring over the next forty years achieve the current average retirement income, all have debts to pay down and one in four need long-term care. In this situation, the total UK retirement savings gap is £9 trillion (5), more than the US 10-year budget deficit projection (6). For an individual in this situation, the average annual shortfall is £16,700.
ìThe second scenario assumed that pensioners retiring over the next forty years achieve 50% of their pre-retirement income and carry no debts into retirement. Again we assumed that one in four required long-term care. In this situation the total UK savings gap was still £4.4 trillion.
ìItís clear the scale of the problem is massive ñ but not insurmountable. Our report identifies the three key issues that lie at the core of the problem.
ìFirst, the Government must clearly explain to the public that the state will not, and cannot, pick up the bill for all the shortfall – doing nothing is not an option if the public wants a reasonable retirement income.
ìSecondly, the financial services sector must shoulder its responsibility and embrace reforms in legislation aimed at improving the standards of and levels of trust in financial products and providers. Equally, these reforms must be communicated to the public.
ìFinally, there has to be more cross-party collaboration to provide the public with certainty around future rules. More must be done by both the government and opposition not only to provide solutions but to engage with a sceptical public to build understanding and acceptance of the action required.î