The UK has the biggest annual pension savings shortfall of any country in Europe, new research has revealed.
According to a study carried out by Aviva, the UK’s yearly retirement savings deficit is £318 billion. To bridge the gap, each adult in the country would need to set aside an extra £10,300 annually to catch up.
The position isn’t much better in Germany where a shortfall of £392 billion means each person must find an additional £9,700.
The UK figure is based on the average savings needs of the 31 million adults due to retire between 2011 and 2051.
Older employees are in the most difficult position, the report said, because they have less time in which to top up their pension savings.
Toby Strauss described the findings of the study as a “wake-up call” and urged more effective partnerships between the government and the private sector.
Mr Strauss said: “We know from our research that many people in the UK are planning to work later into life, but this will not solve the issue.
“By investing from an early age, even a small amount can make a big difference in closing the gap. The younger a person is when they start putting money away, the more time they have to build up a sufficient fund to provide the lifestyle they desire in retirement.”
James Walsh, senior policy adviser at the National Association of Pension Funds, doubted whether more legislation from government could improve the situation.
He said: “Under-saving is a growing issue that will impact on more and more people as the UK ages. We don’t think that extra European legislation will help alleviate the problem. The UK already has a well-regulated pensions infrastructure. The main thing is to get people saving more.”
One analyst, however, pointed to a lack of trust in the system.
George Ladds, head of investment and pension research at the Fair Investment Company, thinks that too few young people have any wish to engage with the subject of retirement savings.
He commented: “How many ideas have come in over the past few years and failed? Rather than looking for the next pension mis-selling scandal, the government needs to be engaging earlier.
“Whether Sipps are right or wrong or drawdown is right or wrong is not important – the government needs to be looking at things that will make people engage. Things like simpler rules. If you look at pension rules, they are still very complex for a very simple concept.”
Mr Ladds supported the idea of the introduction an ISA-style pension in which scheme members can have access to personal savings before retirement but in which tax relief and employer contributions are ring-fenced until retirement itself.
He also pinpointed tax relief, set according to age, as a major savings incentive.
This could involve maximum tax relief on all pension fund contributions to £30,000, with special encouragement for the under-30s in the form of 40 per cent tax breaks on monthly contributions less than £500 and taken at source.
Mr Ladds added: “If younger people could see that for every £60 they saved they would get £100 back, it might actually encourage them to save into a pension.”
