A nation fooling itself
The Pension Map of Britain 2003, a study by JPMorgan Fleming, the
investment bank, paints a grim picture of a nation of workers that is
failing to save for retirement but clinging to the belief that they will
have a retirement income of almost £19,000 a year.
Instead, the bank warns them that three in four working adults will
have to survive on an income of less than half their final salary. The
average British salary is now £24,603. To achieve a retirement income of
£19,000, workers would have to retire on 77 per cent of the average
According to JPMorgan Fleming’s study, 40 per cent of workers are
unconcerned about the amount of income that they will retire on, and 43
per cent have not made any pension provisions at all. Less than 60 per
cent believe that they will have a comfortable retirement.
The figures add up to a huge mismatch between harsh financial
reality and people’s expectations, says Simon Crinage, investment trust
client director at JP Morgan Fleming. Mr Crinage says that the number of
workers who can expect to enjoy a comfortable retirement is rapidly
On the map, released yesterday, the bank has outlined where the
country’s poorest pensioners will live. It shows that workers in the
South West and North East will suffer the most in retirement, while those
in Northern Ireland, the East Midlands and Greater London will be more
To come up with its predictions, the bank made projections based on
the pension contributions, income and age of every person now working,
full-time or part-time, in Britain. It then used a level-term annuity rate
to divide workers into three groups, depending on what percentage of final
salary they would retire on at the age of 65.
The three groups were labelled comfortable, OK and difficult.
Workers in the comfortable group can expect to retire on an income equal
to 50 per cent or more of their final salaries, while those in the OKgroup
will retire on between 40 and 50 per cent of their final salaries. Those
in the difficult group can expect to retire on 40 per cent or less of
their final salaries and are likely to be reliant on government benefits.
Since JPMorgan Fleming first produced the map, in 1996, another
five million people have fallen into the difficult group, and the number
of workers who can expect to retire comfortably has diminished by 3.4
Mr Crinage puts the blame for the deterioration of Britain’s
pension provision on falling equity markets, declining annuity rates and
the closure of many final salary company pension schemes.
According to the study, workers in Northern Ireland have the best
retirement prospects, with 35 per cent likely to be comfortably off in
The South West region has the worst retirement prospects: only 19
per cent of workers living there can expect a comfortable retirement. The
prospects for workers in the North East are equally dim, with 63 per cent
in the difficult group.
The South East has experienced the greatest deterioration of
retirement prospects, with the number of workers who can expect a
comfortable retirement dropping from 61 per cent in 1997 to 26 per cent
East Anglia is the only region where workers have increased their
chances of a comfortable old age. In 1996, only 22 per cent could expect
to be comfortably off. This year, 30 per cent made it into the comfortable
Workers in Greater London are now considerably more likely to be
poor in retirement than they were in 1996, because the proportion who have
fallen into the difficult group has increased from 26 to 46 per cent.
About half of all workers in the East and West Midlands, North West,
Yorkshire, Wales and Scotland can expect a difficult retirement, based on
Mr Crinage says that a massive increase in retirement saving is the
only measure that can recover the situation for some workers. He
calculates that, on average, British working adults need to save an extra
£280 a month, or £3,360 a year, to retire on at least 50 per cent of
their final salary.
“Even additional contributions at a more affordable level of £100
a month will shrink the number of people facing financial difficulty from
53 to 35 per cent,” Mr Crinage adds. “Unfortunately, it’s not that
simple. Our research shows that 27 per cent of workers claim that they
don’t have any spare money to put into a pension.”
He believes that this situation will not change “until we see a
reverse in Britain’s debt burden, which has been fuelled by the housing
boom and by unsecured borrowing”.
Crinage concludes that there needs to be a concerted effort to educate
people from an early age about the importance of saving if the nation’s
present pension problems are not to become worse.