LONDON: Almost half of pre-retirees admit they currently save nothing for retirement

Mar 18, 2013

  • The nation will depend on part-time work and state benefits, as well as pensions, for income in retirement
  • However, on average, people think they will retire on 37% of final pre-retirement salary
  • Two thirds of adults have no idea what size pension fund is required to generate an income of £25,000 a year
  • J.P. Morgan Asset Management suggests ‘Five A Day' style financial planning process

British retirees are counting on state benefits and part-time work to fund their retirement, and almost half of pre-retirees admit they currently save nothing for retirement, despite two-thirds expecting to rely on a pension for income, according to the latest research from J.P. Morgan Asset Management (JPMAM).1

In the week when the Budget announcement may result in further pension changes, JPMAM's research shines a light on gaps in the nation's financial planning for retirement. When asked what their expected sources of income will be, the results reveal two-thirds (64%) expect to use a pension for income in retirement, while almost half (47%) will use state benefits (up from 29% in 20062), and a quarter say they will work part-time. Only one in five (21%) expect to use other investments as a source of income in retirement (down from 41% in 20062), while others will rely on inheritance or downsizing their home (14% apiece) and one in 20 (5%) will depend on equity release. The research found 71% of men expect to use a pension as their income compared with 58% of women, with a higher percentage of females relying on their spouse/partner to support them (22% compared with 15% of males).

When asked how much of their income they are currently saving towards a pension, the nation's average is just 3%. At the extreme ends of the spectrum, half of pre-retirees surveyed say they are saving nothing at all for their retirement (52% of women and 39% of men), while 6% of those polled save more than one-tenth of their income.

Furthermore, when asked what level of pension income they expect to receive in retirement, more than half (53%) say less than 40% of their final pre-retirement salary. The average pension income people are expecting to receive is 37% (on the national average salary of £26,500 this would be £9,805 a year in today's money). Overall, the expectation is higher among males than females – men believe they will receive 40% of their final salary as a retirement income compared with one-third of final salary (34%) for women.

Keith Evins, Head of UK Funds Marketing at J.P. Morgan Asset Management, said: "If ever the nation needed a wake-up call to start planning and saving for their long-term financial future and retirement then this is it. Worryingly, every second person is saving absolutely nothing for their retirement, yet on average people are expecting to retire on 37% of their final pre-retirement salary. Sadly, the numbers just don't add up."

Respondents were also asked what size pension fund they would need to generate a pension income of £25,000 a year, and awareness is low – 63% of UK adults admit they don't know (rising to 66% among those aged 55 or older). On average people believe that to generate an income of £25,000 per annum they need £380,061. This sum is higher among those who are 55 or older, with a mean answer of £476,550, compared with £289,216 for those who are aged 18-34. At current annuity rates (sourced from at 11 March 2013), a 65-year-old with no health problems would need a fund of around half a million pounds to secure an annuity of £25,000.

To help people take action JPMAM recommends adopting a ‘Five A Day' style five-step process to help with identifying financial priorities and then financial planning.

JPMAM's financial ‘Five A Day':

  1. Arrange life / income insurance
  2. Build a rainy-day cash fund
  3. Pay off expensive debt
  4. Use tax-efficient allowances to start saving for the long term in an ISA and/or pension
  5. Review your position regularly

Keith Evins continued: "The situation is a worrying one, but people should not necessarily panic. My advice is to take a step back from the situation and start saving for the long term. There are many points in favour of using pensions as a primary retirement savings vehicle. No other type of investment is likely to offer the prospect of generous contributions from one's employer, for a start. But the biggest point in pensions' favour is undoubtedly the tax relief that is currently available, which means for a basic-rate taxpayer a £100 contribution only costs the saver £80, or £60 for a higher-rate taxpayer. However, although pensions will usually be the beginning of retirement planning, they should not necessarily be the end of it – which is where ISAs come in."

"What ISAs lack in upfront tax relief, they make up in other ways. The increasingly generous nature of the annual allowance – up to £11,520 for the 2013/14 tax year – means ISAs can now be seen as a cornerstone of long-term financial planning rather than an add-on."

"An ISA is a simple way of kick-starting a regular savings habit – by starting to save £50 per month, for example, you could accumulate an ISA savings pot of over £4,000 in five years3. With interest rates on cash savings at an all-time low, now may be the time to consider whether an investment ISA is a better solution for your hard-earned money."

J.P. Morgan WealthManager+

The J.P. Morgan WealthManager+ online platform allows customers to access a number of financial planning tools, such as the financial health check and a tool to evaluate attitude to investment risk to help with investment decisions. It is ideal for investors who want to take control of their financial future, offering a wide selection of investments, including OEICs, SICAVs and investment trusts from J.P. Morgan as well as funds from other leading fund managers, UK equities and ETFs. Investments can be held in an ISA, Junior ISA, SIPP or directly in an Investment Account and regular investment is available from £50 a month.

J.P. Morgan Asset Management joins forces with WaterAid for ISA season

J.P. Morgan Asset Management is donating money to WaterAid for every J.P. Morgan Individual Savings Account (ISA) opened between the end of January and the end of April 2013. J.P. Morgan Asset Management will donate £15 for ISAs opened directly with J.P. Morgan by phone, post or online4, and is donating £40 for every brand new account opened through the WaterAid website.

– Ends –

Notes to Editors:

1 Opinium Research carried out an online survey of 2009 UK adults aged 18+ from 21 to 23 November 2012. Results have been weighted to nationally representative criteria.

2 J.P. Morgan UK Pension Map 2006

3 Illustration assumes a monthly investment of £50 per month, 5% annual growth with income reinvested over 5 years, resulting in ISA savings of £4,173

4 This activity aims to raise up to £15,000 and is part of a wider corporate fundraising initiative for WaterAid through the work of the JPMorgan Chase Foundation in the U.K. The JPMorgan Chase Foundation is an affiliate of JPMorgan Chase & Co. Its mission is to be a catalyst for meaningful, positive and sustainable change within the highest-need neighbourhoods and communities across the world in which it works. The firm's philanthropic investments are directed toward Community Development, Education and Arts & Culture. In 2011, JPMorgan Chase and its Foundation gave more than $200 million through grants and sponsorships to thousands of not-for-profit organizations across 34 countries.

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Katherine Hobby
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