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Ready to work ’til you’re 85? Even high earners face a workplace pensions crisis

According to the pensions market, t's unlikely that Generation Y will be able to retire until they reach their mid-80s

As a result of the current state of the market, even those with higher incomes will struggle to retire in their 70s, leading some people to foresee what is being called the ‘death of retirement’.

It is generally agreed that workers should save to retire on an income worth two-thirds of their salary to have a decent standard of living in retirement; however, as falling state benefits combine with lower employer contributions, the amount going into workers’ pension pots is generally much lower than that of previous generations. This combination of factors means that current and future generations of workers will need to work for longer and retire later to be able to achieve this.

An in-depth study of the pensions market was conducted by mutual insurer Royal London, with the findings of the study making dire reading for younger workers.

Even for workers earning a salary of £54,000 – double the average wage in the UK – retiring on an income equal to 66% of their annual salary is close to impossible. According to the report, someone earning this much whose pension rises with inflation would have to work until 85 to be able to retire with the recommended amount in their pension pot. As the report says, this is an ‘effectively impossible’ goal.

As the recommended pension amount is based on a proportion of a workers’ salary, it is actually more achievable for lower income workers to retire younger; however, the report states that even workers on the average annual income would need to start saving for their pension at 22 and continue to work until the age of 77 to be able to live comfortably in retirement. If such a worker was happy to retire on just half their retirement income, they would still need to continue working until the age of 71.

While the state pension age for younger workers is already on the rise, Royal London’s report indicates that the majority of workers will need to work beyond the age at which they will be entitled to their pension regardless.

The director of policy at Royal London, Steve Webb, said that we could be witnessing the death of retirement without significant increases in contributions.

The calculations made by Royal London in its report are based on workers of varying incomes who contribute the legal minimum of 8% of their income to their pension pot under auto-enrolment. The report recommended that workers who wish to retire on the recommended two-thirds of their salary should instead contribute 20% throughout their working lives; however, with the high cost of living and lower salaries earned by the majority of young people, this advice will be unachievable for many.

According to Mr Webb, many people will face a cruel disappointment if they anticipate that current minimum contribution levels will deliver the kind of retirement they are hoping for.

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