A person who saves 20 per cent of salary from age 41 to 65 will lose a third of what they save by not getting the pension credit, according to research by the Pension Policy Institute.
The thinktank's study shows that someone starting saving at 41 and retiring at 65 needs to save 20 per cent of their salary to achieve a retirement income of two-thirds of final salary.
The research, which looks at the alternatives facing individuals who have undersaved, shows that a person with average earnings can achieve a two-thirds retirement income by working to 70 and only saving 4 per cent of earnings. The person could also achieve the same retirement income by working until 67 and saving 13 per cent of salary.
The pension credit, introduced in October 2003, will add 10 per cent of final salary to workers on middle earnings, bringing his or her retirement income up to 47 per cent of final salary.
Pensions Policy Institute research modeller Federico di Pace says: “The UK pension system is very complex, which makes it hard for an individual to plan for the long term.
“People who are approaching the end of their working life and find they have a small amount of retirement saving can either accept a lower income, work past their expected retirement date or start saving seriously.
“The pension credit has extended the savings barrier for many of today's workers. A large proportion of pension saving will simply replace state benefits that would otherwise be payable.”