Defined contribution (DC) pension contributors are saving £11.4bn less than they need to each year, according to a survey by Aon Hewitt.
The UK-wide survey also found individuals were, on average, contributing £1,400 a year too little into their pension pots and that less than a fifth (16%) of people contributing to a DC pension scheme were saving enough to maintain their standard of living in retirement.
Carried out by YouGov, the survey concluded that 8.1 million people contributed to a DC scheme, and of these, around a third (2.75 million) do not know the level of retirement income they are expecting to receive. Additionally, around half (4 million) will not have saved enough at retirement to maintain their standard of living, based on their own expectations.
The survey suggested DC contributors were out of touch with their savings requirements. Although there are now more members enrolled on DC schemes, 37% of people are saving less than 5% of their annual salary, while a further 48% are saving between 5% and 10%.
Despite low savings rates, of those who knew how they wanted to take their benefits, two-thirds told the survey they still wanted a stable income in retirement.
In real terms, this means that, to maintain his standard of living, a male DC member aged 25 and earning £22,500 a year needs to save 18% of his salary, or £4,050 per year, to maintain his standard of living if he wants to retire at age 65.
Meanwhile a male DC member aged 40 and earning £30,500 needs to have already saved a pot of twice his salary – in other words, £61,000 – and continue to save 19% of his salary to maintain his standard of living if he wants to retire at age 65.
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