UK individuals in their 20s should increase their annual pension contributions by £22 billion, up from the £2 billion they are currently saving in order to meet recommended retirement targets, says Bowmore Financial Planning.
Bowmore says that failure to save appropriately could jeopardise the standard of living in retirement.
Bowmore analysis of HMRC data shows that UK individuals in their 20s, that are saving into a defined contribution pension are only saving on average, £721 per year – or 2.46% of their salary – into their pension.
The dramatic shortfall in private pensions can be estimated based on the commonly used ‘half your age’ rule, which recommends saving half your age as a percentage of your salary into a pension scheme. That means someone starting to save for retirement at 26 should aim to contribute 13% of their income in order to have a comfortable retirement. Applying the rule to the age bracket helps show how far UK savers are behind in their pensions savings.
Early pension contributions a crucial step for savers
Not only are those in their 20s saving low amounts, but this hardly improves as people get older. For example those between 40 and 50 are only saving 3.3% of their income in a pension.
Gill Millen, Managing Director at Bowmore Financial Planning, says: “Young people aren’t putting enough into their pensions – this will impact the quality of their retirements.
“Those starting their careers need to plan for a sustainable retirement income now. This is the best way of securing a strong long-term financial position.
Delaying contributions means missing out on the large long-term gains from compound interest on early investments. The earlier you start the easier it is to save enough”
Other age groups lag behind too
All age groups are falling short of recommended contribution levels. In 2022/23, individuals in their 30s saved an average of £321, well below the recommended £3,800 target. Those in their 40s saved only £445 out of a £4,600 target, while those in their 50 saved £557 towards a £4,500 target (see table below).
Says Gill Millen: “All age cohorts are falling far short of healthy pension contributions. The gulf between savings and savings targets grows with time – some savers now have a very large gap to make up.
The gaps are very substantial in percentage terms which suggests that many people will face an unexpected drop in their standard of living when they retire.”
| Age group | Current total contribution (£bn) | Target total contribution (£bn) | Current contribution per individual (£) | Share of salary contributed | Target contribution per individual (£) |
| 20 to 30 | 1.9 | 23.8 | 221 | 2.46% | 2,639.96 |
| 30 to 40 | 3.00 | 56.6 | 321 | 2.74% | 3,759.37 |
| 40 to 50 | 3.8 | 84.6 | 445 | 3.27% | 4,596.63 |
| 50 to 60 | 5.1 | 111.7 | 557 | 4.33% | 4,484.72 |
| 60 to 70 | 2.1 | 86.9 | 279 | 5.71% | 3,452.00 |
Source: HMRC – contributions to Relief at Source pension schemes by age bracket. Figures calculated by applying the half your age rule to the savings rates of both contributors and non-contributors in the 2022/23 tax year. An average employer contribution of 3% has also been factored into the calculation
Source: HMRC, Source: ONS – average salaries by age group.
Individual targets referenced are based on savings rate recommendations from the Pensions and Lifetime Savings Association (PLSA), combined with salary data from the Office for National Statistics (ONS).
