Great expectations

By HELEN LOVELESS, MAIL ON SUNDAY ENTERPRISE EDITOR
Updated:

 

AROUND 40% of people are failing to save any money into a personal or occupational pension.

Yet despite the lack of investment for our future, most of us still assume we will be able to live comfortably off our pension when we retire.

According to new research, the average worker in the UK expects to retire at 59 with an annual pension income of £20,730. This is despite two fifths of people investing no money at all into personal pensions, while those who do contribute pay an average of just £45 a month.

In fact, in order to enjoy an annual pension of £20,904, before tax and NI, someone aged 25 in April 2003 would need to save £340 a month - nearly eight times the average amount paid in.

This increases to £575 a month for someone aged 35 in April 2003 and hoping to receive an annual pension income of £20,852 before tax or NI.

Paul Morrish, director of personal customers at Barclays, which carried out the research, says: 'The amount people are currently saving simply won't meet their expectations in years to come. This needs to be addressed now.'

Overall the value of personal pension funds on retirement has fallen sharply over recent years, due to poor stock market performance.

In the last six years alone investment returns have dropped by 33% to 49% on average, figures published by Investments, Life & Pensions magazine reveal.

A man retiring at age 65 after making pension contributions of £500 a year for 15 years would now have a fund value in a unit-linked fund of £9,867 on average, compared to £19,195 in 1997 - a drop of 49%.

And forget relying on the state pension. At just over £75 a week - under £5,000 a year, it's hardly likely to keep you in any style to which you would like to become accustomed.

But for those who think they cannot afford to save, stakeholder pension schemes could be an option. Designed to be low cost, transparent and flexible, costs are capped at 1% and you can stop and start a plan at any time. It is also easy to change the amount you pay in if necessary.

The Government gives relief on individual pension contributions worth 22% to basic-rate taxpayers and 40% to top-rate taxpayers.

Even non-taxpayers and the unemployed can have stakeholder plans and receive basic-rate relief on contributions of up to £2,800 a year, taking the total to £3,600.

Click here for our guide to stakeholder pensions

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