The Fidelity Retirement Index

How big is the savings gap?

• Someone retiring on today's average income could expect to receive a weekly income of £185 - less than the minimum wage²
• Members of final salary schemes are on course to replace 81% of their final earnings
• Members of defined contributions schemes with employer contributions are on target for 51% of their final earnings
• Members of defined contributions schemes without employer contributions can expect to get 35% of their final earnings
• The group least prepared are those under 35, who are likely to receive just 39% of their final earnings
• On average, women are less prepared than men

Based on our research, a typical household could receive just 42% of the value of their final earnings in their retirement - well below the recommended 66%, and short of the 50% minimum level suggested by the Government commission on pensions.

The Fidelity Retirement Index also showed that the average woman in the UK is even less prepared, being on course for only 40% of her forecast final earnings, compared with 47% for men. 

Retirement readiness did increase with age, with those over 55 likely to replace 58% of their forecast final salary.  Worryingly, those under 35 had a rate of just 39%, lagging well behind. 

What could this mean in practice?

It could represent a big change in lifestyle.  Take, for example, the case of someone retiring on today’s average income of £22,900.  If they received 42% of their final salary after giving up work, they would have to live on less than someone who today earns the minimum wage.³

These figures demonstrate how important it is for individuals to take an active role in planning their retirement and investing sufficient amounts wisely. 

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 ¹ A national survey was conducted for Fidelity International by NOP. The survey included 1,141 people who are working and are not yet retired, and are the financial decision makers in their household. Interviews were completed in February 2006.

The index calculations were carried out by Towers Perrin using a method, known as stochastic modelling, which has investigated hundreds of different investment scenarios for each of the 1,141 people we surveyed.
The Fidelity Retirement Index represents the median (or mid point) of the results produced.
Projections of future incomes are based on the following assumptions:
• pre-retirement earnings will rise in line with National Average Earnings (currently 3.6%)
• retirement incomes include a full state pension
• the Basic State Pension will rise in line with increases in the Retail Price Index
• payments from SERPS and State Second Pension will rise in line with National Average Earnings (currently 3.6%)
Statistics on employer contributions to defined contribution schemes depended on whether respondents were able to say whether their company was making payments into their pension schemes.

² Weekly income of £185 is based on the national average salary of £22,900. (source ONS, 2004/05 tax year) Minimum wage for those aged 22 or over is currently £5.05 an hour, so for a 40 hour week = £202.

³ Minimum wage for those aged 22 or over is currently £5.05 an hour, so for a 40 hour week = £202; minimum wage rises to £5.35 from October = £214.