Younger workers will retire with third of pensions paid to parents

Wednesday, 25 January 2012

Younger workers are set to retire with company pensions worth just a third of those paid to their parents, it has emerged.

New research has exposed an average gap of around £15,000 a year between pensions of baby-boomers and today's workers.

Currently, 60-year-olds part of a "gold-plated" earning related scheme can expect to retire on an income of around £21,070 a year.

Those who have paid into a "defined contribution" scheme, with pensions based on stock market returns, return an average annual income of £13,330.

In contrast, a 20-year-old just starting work, can expect a company pension of just £6,400 a year if they make the same contributions.

Actuaries firm Barnett Waddingham, who collected the figures, say 20-year-olds can only boost their pensions by £4,000 a year by working an extra five years.

Malcolm McLean, a consultant at the firm, said companies were paying less into staff pensions.

Young workers will also be hit by falling annuity rates, caused by increased longevity and lower investment returns.

Mr McLean said: "These figures show the stark reality of the pension divide between past and future generations.

"The pensions enjoyed by substantial numbers of former workers in the private sector will clearly be well beyond the reach of many in the years ahead."

The Government has launched a new campaign to encourage people to save for their retirement - and any future care bills they may face in the future.

Over the next few years, all workers will be automatically enrolled into a pension scheme, with contributions taken from their salaries.

But Mr McLean said the scheme would be "too little, too late" for many workers, leaving them without a decent pension in retirement.

He added: "It remains my view that the Government should develop a Plan B for implementation at the earliest possible stage should auto-enrolment fail to deliver the desired results.

"In the meantime there should be no resting on laurels.

"What has happened to our once great and much valued private pension system is a sorry tale but we owe it to succeeding generations to do what we can to at least partially restore the situation before it is too late."