Saving for retirement is a waste of time for the majority of investors, according to new research.
Liberal Democrat figures reveal the majority of people would be better off not saving at all and relying on state benefits. Former programme director at the Institute for Fiscal Studies and LibDem pensions spokesman Steve Webb has used Department of Social Security statistics to calculate investors would need a pension pot of £41,000 to buy an annuity equalling state means-tested benefits. This figure dwarfs the average pension fund used to buy an annuity this year, estimated by industry experts to be around £25,000.
Opposition parties and consultants say the situation is set to get worse because the proposed state second pension is linked to income levels while the basic state pension is linked to prices.
Bacon & Woodrow senior consultant Raj Mody estimates to buy an annuity linked to income levels would cost around £80,000.
Webb says: “The Government needs to resolve the fundamental contradiction between wanting people to save and relying on means-testing.”
Tory MP Howard Flight attacked the fact that the average amount to be accumulated under the stakeholder, which he estimates at £85,000, will only equal the minimum income guarantee. Speaking in the Commons, he said: “Savers would be saving £85,000 for absolutely nothing and would end up in the same position, free under the state pension.”