Those who think that paying the minimum into their pension pot under auto-enrolment is going to fund them a comfortable retirement are in for a nasty shock, as pension experts warn the savings contribution system is lulling people into a false sense of security.
Portal Financial also today warned that some people could be confused by the difference between state pension age and the age they could access their pension under pension freedoms, wrongly believing they were not entitled to retire or touch their retirement savings until they had reached state pension age.
"Apathy, misunderstanding, confusion and misperception are a toxic mix that could lead to retirement poverty for many of today’s workers," warned Jamie Smith-Thompson, managing director of Portal Financial. "A person who has been retired for many years may have received a much more generous annuity rate than can be achieved today, while there is a good chance many parents of today's 20-somethings have final salary pensions.
"Young workers need to understand how the situation they face is different now."
Last month, a study published by Royal London discovered that people on average earnings who contributed just the minimum amount under auto-enrolment would need to stick at their day job until they were at least 77 if they want to retire on two-thirds of their pre-retirement income – and that's assuming they started contributing at 22.
Those who did not start paying into their pension until they were 45 could find themselves needing to work until their 80s to fund their desired lifestyle.
Earlier this week, a study published by the Independent Review of Retirement Income found that workers needed to be setting aside roughly £1 in every £6 received – or 15 per cent of their salary – to be financially comfy in their golden years.
Auto-enrolment has been gradually phased in since 2012, with the date businesses need to sign staff up to a scheme depending on how many employees they have.