Nine out of 10 Scots set to miss pension target - Aegon
The average Scot is set to be more than £20,000 worse off than they expect in retirement, according to new research from Edinburgh-based insurance firm, Aegon UK.
Although retirement savings rates among workers north of the Border has improved marginally compared to a year ago, the insurer found that Scots are still facing a massive pensions black hole, and produced the lowest average “readiness” score, as ranked by Aegon, of all the UK regions.
The data shows Scotland at the back, trailing Northern, with fewer than one in 10 investing enough for when they finish work and the average Scot in employment currently looking at an income during retirement of £12,300 a year.
This compares with what they currently expect; an annual income of £33,600, which, based on the most competitive annuity rates currently on the market, a 65-year-old in good health would need a lump sum of about £800,600 to achieve -while balancing out inflation.
However, despite only eight per cent of the Scottish population on track to achieve their desired pension pot, Steven Cameron, pensions director at Aegon UK, said there was reason for optimism.
He said: “Despite their reputation for prudence, Scots are lagging behind the UK generally with eight per cent on track for the retirement they want, 12 per cent across the UK.
“But on a positive note, across Scotland, since last year, over 150,000 people have improved their saving behaviour, or changed their aspirations for retirement.
“But the job is far from done: 92 per cent of the Scottish population are still falling short of their retirement targets.”
Jim Doran, a senior consultant for Mercer in Glasgow, said: “The pensions savings gap – the difference between what is being saved and what needs to be saved for an adequate income in retirement – is one of the biggest challenges facing policy makers in Europe.
“Employers in Scotland are waking up to the risks of employees not being able to afford to retire, which include an ageing workforce and resulting lack of promotion opportunities for younger workers.”
Mr Doran added that so-called “auto-escalation” arrangements – where employees pre-commit to regular increases in their pensions contributions, perhaps in line with pay rises – had been shown to boost retirement savings.
He said: “Over time, the individual forgets that they have committed to save more and is in effect defaulted into far higher savings rates in future years.
“One experience of this type of arrangement in the US showed that it helped boost the average pension member’s savings rate from 3.5 per cent to 13.6 per cent in just over three years.”
Mr Cameron said the benefits of initiatives such as the Lifetime Isa needed to be clearly set out for savers.
He added: “The Scottish Government also needs to ensure it doesn’t create confusion around pensions tax relief if exercising its new powers to set income tax bands and rates.
“We must avoid complex changes to encourage the UK population to continue to thrive in their planning for later life.”