Pension hopes turning to dust

WORKERS badly underestimate how much they need to save for a reasonable retirement, according to a survey out tomorrow.

It comes after a report by Adair Turner, chairman of the Pensions Commission, that pointed to a £57bn 'black hole' in public and private pensions.

Turner claimed that millions were living in a fool's paradise, believing they were saving enough to live comfortably in old age when they were not.

Consultancy firm Hewitt Associates asked workers on wages averaging £25,000 to £30,000 how much pension they would expect if they were compelled to contribute between five and ten% of salary over their working lives.

Typically, they thought they would get between £10,000 and £15,000 a year.

Yet Hewitt says a 35-year-old paying five% of a £25,000 salary into a money-purchase (defined contribution) scheme and retiring at 65 would receive only £5,000 a year.

For a pension of between £10,000 and £15,000, the same person would either have to work beyond 80 or increase contributions to more than 20%. Raj Mody, Hewitt's pension specialist, believes there is a substantial gap between people's pension expectations and reality.

'Individuals have to accept a triangle-of compromise - a combination-of retiring later, paying more into a pension and taking lower benefits on retirement,' he said.