At the retirement planning summit in Monte Carlo last week, Association of British Insurers economist Rebecca Driver said, on average, people expect a replacement rate of two-thirds of their pre-retirement income.
Personal accounts will have a mix of employee and employer contributions set at a total of 8 per cent of eligible earnings but Driver said the level of contribution proposed for personal accounts would only provide in the region of 50 per cent of pre-retirement income.
Driver said: “There is a big risk that personal accounts will not meet people’s aspirations.”
Personal Finance Society president Paul Lothian said the proposed level of 8 per cent of band earnings is “woefully inadequate” and would fall far short of people’s expectations for income in retirement. But he said the answer was to address people’s expectations of the new pension system.
He said: “The answer is if people have more financial education and have their expectations of the level of income provided revised downward.”