The insurer’s study revealed that people aged between 45 and 55 expect to work until they are 65 years old and estimate that their average annual retirement income will be £14,000 a year when the time comes for them to stop work.
In contrast, figures from Prudential’s study of the ‘Class of 2015’ – those planning to retire this year – show an expected average annual income of £17,000, leaving a generation gap in retirement income of £3,000 a year.
Just 27 per cent of the next generation of retirees, those aged 45 to 55, believe their pension will provide them with sufficient income to enjoy what they consider to be a comfortable life in retirement. This compares with half of those planning to retire this year.
Prudential’s research also found that the generation gap in retirement income comes as no surprise to the next generation of retirees. Seven in 10 (70 per cent) of those aged 45 to 55 say that they expect to have a lower standard of living than people currently in retirement, while only six per cent expect their standard of living to be better.
Almost half of the next generation of retirees have put their pension contributions on hold at some point during their working life. More than one in 10 (11 per cent) have taken a break that lasted more than a decade, and a further 20 per cent have stopped making contributions for between three and 10 years.
Vince Smith-Hughes, retirement income expert at Prudential, said, “We know from the results of our annual research that retirement income expectations have been rising over the past few years. In fact, 2015’s retirees have the highest expected retirement incomes of any group since the financial crisis, so it’s surprising to see reduced confidence among the next generation of retirees.
“For most people, starting pension contributions early and continuing these throughout their working life is the best way to achieve a comfortable standard of living in retirement. However it’s not too late for those in their 40s and 50s who are looking to top up their pension pots – for many people this is the time in life when earnings are at their highest, thus providing the best opportunities to save.
“When planning finances for life after work, consulting a professional financial adviser will be helpful for many people trying to stay on track for a comfortable retirement. Retirees should also remember the free guidance that is available from the new Pension Wise service for those taking benefits, which is designed to help clarify the multitude of choices now available to retirees.”
Mr Smith-Hughes also said it’s not too late to make a difference to your retirement.
According to Prudential’s calculations, a 45 year old planning to work for another 20 years and currently on course to receive the average retirement income expected by the next generation of retirees, could start an additional private pension and contribute just over £70 per month (after tax relief) for the rest of their working life and bridge the £3,000 a year generation gap in retirement.
What’s more, the same individual contributing £100 per month after tax relief over the 20 years they plan to continue in work would build up a projected pot of extra pension savings of £56,658 which could potentially boost their pre-tax annual income in retirement by £4,266.
Meanwhile, making monthly contributions of £250 net of tax will result in an additional pot of £143,409 and a pre-tax annual retirement income increase of £10,888.
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