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The Actuary The magazine of the Institute & Faculty of Actuaries

Action needed to tackle £9 trillion UK retirement savings deficit

A report by the Chartered Insurance Institute (CII) has estimated the UK’s retirement savings deficit at £9 trillion, and calls on politicians and the financial services sector to address the problem through better education and legislative commitment in this area.

The figure, which is taken from existing data and is defined as the ’savings required to fund retirement once costs associated with long-term care and debt are taken into consideration’, appears in the report, ‘An age-old problem - developing solutions for funding retirement’.

The CII says that the aim of its research was to show the difference between what people are currently saving and what they will need to save to live comfortably day to day, pay for long-term care costs and pay back debt.

David Thomson, director of policy and public affairs at the CII, said: "The OECD notes that currently, on average, pensioners only achieve 30% of their pre-retirement salary during retirement. This is significantly less than the 70% figure which the OECD believes is necessary to live adequately.

"We ran two core scenarios. The first scenario assumed that pensioners retiring over the next forty years achieve the current average retirement income, all have debts to pay down and one in four need long-term care. In this situation, the total UK retirement savings gap is £9 trillion, more than the US 10-year budget deficit projection. For an individual in this situation, the average annual shortfall is £16,700.

"The second scenario assumed that pensioners retiring over the next forty years achieve 50% of their pre-retirement income and carry no debts into retirement. Again we assumed that one in four required long-term care. In this situation the total UK savings gap was still £4.4 trillion.

"It’s clear the scale of the problem is massive - but not insurmountable. Our report identifies the three key issues that lie at the core of the problem.

"First, the Government must clearly explain to the public that the state will not, and cannot, pick up the bill for all the shortfall - doing nothing is not an option if the public wants a reasonable retirement income.

"Secondly, the financial services sector must shoulder its responsibility and embrace reforms in legislation aimed at improving the standards of and levels of trust in financial products and providers. Equally, these reforms must be communicated to the public.

"Finally, there has to be more cross-party collaboration to provide the public with certainty around future rules. More must be done by both the government and opposition not only to provide solutions but to engage with a sceptical public to build understanding and acceptance of the action required."