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Wishful thinking by stakeholders

Almost two-thirds of stakeholder policyholders intend to retire by 60 but are failing to pump enough money into their pensions to enable them to do so, claims Norwich Union.

The insurer&#39s survey of its individual policyholders found that 60 per cent plan to quit work five years before the state retirement age but are not contributing enough to accumulate what it believes is needed to provide a decent income in retirement.

Taking £150 a month as the benchmark, NU found that more than 90 per cent of policyholders in the 18-25 age bracket are paying in less than required while over 75 per cent in the 31-45 band are contributing an amount which will not bring in their ideal fund.

As an example, it calculates that an average male aged 35 planning to retire at 60 would end up with a pension pot of just over £103,000, given growth rates of 7 per cent and contributions of £150 per month. At interest rates of 6 per cent, this would generate an income of around £8,000 a year.

However, for the same male to retire at 65, the pot would be £149,000, giving an annual income 38 per cent higher at more than £13,000.

Media relations manager Ian Beggs says: “There is an element of wishful thinking among too many policyholders who are not investing enough to end up with a dec-ent pension. Combine this with reports that people will have to work longer before they can retire and it goes to show that people should be seeking to inc-rease their contributions.”

Roberts Clark director Jo Roberts says: “I am not surprised. A large proportion of consumers have no idea what a monthly contribution would give them and do not understand what effects inflation, investment returns and annuity rates have on their pension funds.”

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