"Underestimating the amount of income workers need to replace in retirement could be devastating to their long-term security, and they could find themselves struggling as a retiree."
A survey of more than 1,200 people revealed that 83% of workers, including full-time, part-time and self-employed, don’t know what size pension pot they need to retire.
Furthermore, 42% of employees admitted to being unknowledgeable on pensions, while a further 38% said they were neither knowledgeable nor unknowledgeable. Just 14% of respondents said they were knowledgeable about pensions, with 2% considering themselves as very knowledgeable.
George Critchley, Chairman at True Bearing, said: “When a worker retires and is no longer getting a regular wage, they need to replace the income their employer used to provide them. Determining how much of their income they need to replace is key, especially as most people’s spending changes in retirement.
“Underestimating the amount of income workers’ need to replace in retirement could be devastating to their long-term security, and they could find themselves struggling as a retiree. Pensions were only ever meant to pay out for 10-15 years. Today, many of us are expecting to live many years beyond our retirement, which needs to be considered when thinking about what size of pension pot is needed.
“As a rough guide, workers should be aiming for between 12-15% of their salary for 40 years.”
To encourage employees to start building up retirement savings, the government introduced pension reforms through the Pensions Act 2008, which requires all employers to offer workplace pensions schemes and to automatically enrol eligible workers into their schemes. Automatic enrolment is designed to help workers build up their retirement fund without having to take any actions themselves.
Our survey findings revealed that 86% of workers have a workplace pension, with almost half of employers (49%) paying above the minimum 3% contribution. Surprisingly, 22% of employees with a workplace pension are not aware of how much their employer puts into their fund.
When considering different genders, male employees (53%) were more likely to receive above the minimum contribution from their employers into their workplace pensions than female employees (43%).
George said: “It’s great to see so many employers contributing above the minimum requirement into workers’ pension schemes. On top of this, many employers are helping their staff to prepare for retirement after recognising that they need to provide support by ensuring they get into the savings habit, stay on course and retire smoothly.”
When we asked respondents whether their employer offers pre-retirement advice, 29% responded ‘yes’, while 36% said they didn’t. Some 35% said they did not know whether their employer-provided pre-retirement advice. Our survey found that most employers offer advice on pension benefits (64%), followed by options for retirement (62%) and how the recruitment process will work (61%).
Employers were least likely to offer advice on estate planning (11%), alongside new opportunities (16%) and maintaining a physical and mentally healthy lifestyle in retirement (21%).
George said: “Employers are realising that setting employees’ minds at rest about their retirement is making them more productive, loyal and committed. Good retirement planning is key to helping long-serving workers fulfil their post-work dreams.”