Over a million pensioners rely on property for retirement
In addition, almost three million retired people could also take a hit as they are relying on shares to fund their old age. These consumers may have to wait several years for this part of their retirement fund to recover from the current stock market cash.
These are just two of a number of factors leading to the reality that, today, almost one in 10 people in the UK admit they simply cannot afford to retire - 18% of these are over 65 years old. This is clearly a problem as 37% of those who are already over the official retirement age of 65 feel they will need to work up to the age of 77 in order to maintain an acceptable standard of living.
Unprepared in the face of unemployment
It would appear today's working population will be even worse off as only 39% of working age adults (13.8 million) are either paying into or are part of a pension scheme. This leaves 61% of people reliant on the state pension which is just £4,732 a year.
The impending rise in unemployment we are facing will only serve to compound this issue even further. By next year, it is predicted to rise from 5.8% to 7.1% affecting an additional 406,016 Brits. This could result in an extra £438 million worth of lost pension savings in 2009 as these people are unable to put money away and employers no longer contribute to their pensions.
Not saving enough
While life expectancy continues to increase year-on-year, the amount that people are saving is at its lowest level for almost 20 years, indicating a very uncertain future for the next generation of pensioners. In 2006, the average working person saved £1,288 per annum, but in 2007 this plummeted by almost 40% to £776 due to the increasing pressure of the economic crisis.
As it stands, half of the working population is saving less than £100 a month for their retirement and 56% of people currently contribute nothing whatsoever. This leaves more than half of UK consumers completely unprepared for retirement. Almost a fifth (19%) of the population hasn't even started making provisions for their retirement with just under a quarter (22%) of these aged between 25-34. There remains a reasonably high percentage of people (17%) in the 45-54 age bracket who are still not saving, despite the fact that they are nearing retirement age and should therefore be putting aside even more than the younger generations.
Ann Robinson, Director of Consumer Policy at uSwitch.com, says: "The economic slump has certainly scuppered the best laid plans of people nearing retirement. Consumers are faced with falling house prices coupled with a stock market crash and low savings rates - these factors combined seem to cut off every possible life line to fund a happy retirement.
"The outlook for the next generation of pensioners is more serious than it's ever been, especially for those who aren't making the right provisions to see them through retirement. It's unrealistic to think that consumers will be able to make hundreds of pounds worth of savings every month, especially in the current climate, but there are steps they can take to ensure a more comfortable retirement. Even though times are tough, it is important that people review their financial position in order to invest what they can to secure a better future. Every penny really does count."
In the current climate, the average 25 year old should be saving £129 a month in order to survive on the minimum wage through retirement. This age group will now have to work until the age of 68 as the State Pension age for both men and women is to increase from 65 to 68 between 2024 and 2046. Delaying these savings by ten years would mean the same person would have to contribute £208 per month. Those who rely solely on the state pension who retired in 2008 will still need to find an additional £7,186 a year, just to be living on the minimum wage of £11,918 in retirement.
Even today, the average working person is expected to live for almost 22 years past retirement, and by 2050 the average life expectancy will have shot up to 95 - an increase of more than 5% from today. It's no surprise that nearly three quarters (72%) of the working population are worried that they will not be able to support a decent quality of life for themselves in old age.
The ageing population
The Government currently allocates almost £57 billion (4.04%) of gross domestic product (GDP) in pensions to over 12 million pensioners each receiving a basic payment of £4,732 a year. By 2050, there will be 16 million pensioners in the UK, with a life expectancy of 95 years which is an increase of just over 4 million from today's figures. As a result, national insurance contributions will have to increase to make up for the £49 billion annual shortfall, which could leave working Brits even further out of pocket to the tune of £1,032 a year each.
The British public is faced with the reality that they will have to keep working, not only to support themselves but to pay for the increasing number of pensioners. In light of the surge in public borrowing announced in the pre-budget report, this is merely adding fuel to the fire.
Ignorance is bliss
Outside of the financial pressures we are all facing, there is also a distinct lack of knowledge in the UK about how much is needed to survive throughout retirement and what we should be investing in as the financial situation continues to worsen. In fact, almost half (47%) of the working population do not have a clear idea of what their retirement income should be.
In the last 20 years, there has been a shift in where consumers are investing their money with over a third (34%) of the UK paying into ISA accounts as a source of income through retirement. A more risky option, apparent amongst older generations, is investing in shares with almost a quarter (24%) of over 65s relying on today's turbulent markets.
Dr Tim Leunig, Professor at the London School of Economics, says: "Relying on the state to look after you in retirement is a recipe for poverty in old age so starting to save as young as possible is good advice for everyone. The current downturn in tax revenues and big increase in Government borrowing makes it even harder for the Government to fund the pension promises made in good times. Future state pensions could be lower than people expect, increasing the benefits of private saving.
"People who lose their jobs lose not only their wages, but also future pension entitlement, which means today's recession will have repercussions for many years to come. The increase in life expectancy and changes in the pension age means that a person needs to save around a third more now than they would have done 30 years ago, just to get the equivalent of the minimum wage."