Over-50s with defined contribution (DC) pension schemes are too optimistic about the amount of retirement income they will receive, according to research by the Institute for Fiscal Studies (IFS).
The report, Expectations and experiences of retirement in defined contribution pensions: a study of older people in England, supported by the National Association of Pension Funds (NAPF), found that respondents with a DC scheme who were approaching retirement (aged 50 to 64 years), would need to have their pension pot grow by 77%, or £20,200, in order to meet their expected retirement income.
The report also found that men and women in their 50s are underestimating their life expectancy by two and four years, respectively, when compared with the national projections for life expectancy, so they may not be prepared for how many years of retirement they will need to save for.
The report also found:
- One in four respondents aged 50 to 64 years would need to save more than £60,000 before retirement to reach their expected income.
- Six out of ten have never thought about how many years of retirement they need to finance.
- 32% could not offer a rough estimate of what their private pension income might be in retirement.
- 28% of those annuitising bought one from a provider other than the firm they hold their pension with.
Joanne Segars, chief executive at the NAPF, said: “Fortunately, people are going to live longer than they think, but they are not planning for it, so they might find their savings and pension do not stretch far enough.
“Millions of people are within a decade of their state pension, but have still not thought about how long their retirement might last.
“It’s worrying that so many over-50s are sleepwalking into their old age and expecting to be better off than they will be. It does not help that the annuity market has become so tough.”