The drop in pension provision is widespread across age groups and income levels according to the 5,200 UK adults questioned. Worryingly, one in five have put nothing aside for later life. This figure has also increased year-on-year.
Scotland is one of only two UK areas where more than half are saving adequately for retirement. The other area is Yorkshire & the Humber. This could be down to the high number of Scots who are employed by large public and private sector organisations.
As well as identifying record lows in pension savings, the new report lays bare the stark differences in current expectations and reality.
Despite retirement savings plummeting, the nation's aspirations for their pension income have actually increased by £200 from 2011 to 2012. The findings show that the average level of annual income people would feel comfortable living on at 70 years-old is now £24,500 compared to £24,300 in 2011.
Based on this year's new low average savings levels, an average saver retiring at 65 would receive just over half the amount that they feel they need. The total pot for an average saver is around £150,000 in today's terms which would only provide an annual pension of £5,700.
With the addition of the state pension this would generate a yearly income of approximately £13,000 which falls drastically short of the £24,500 annual income people are looking for and equates to a total shortfall of £300,000. To meet current expectations, an average saver needs to save an additional £4,500 a year or £375 per month to plug this expectation gap.
Furthermore, high retirement income expectations are matched with a desire to retire before the official state pension age. As many as 41 percent of people would like to retire by their 60th birthday, the average age at which people would like to retire remains 61 - 62 and under one in ten, just nine percent, want to work until they are 70. This has remained consistent from 2008 - 2012.
Ian Naismith, Head of Pensions Market Development for Scottish Widows, said:
"These are alarming findings as UK pension provision has hit an all time low. People are saving less for old age yet their expectations remain high as the majority fail to recognise the harsh reality of retirement.
"With an aging population, and ongoing economic difficulties, it has never been clearer that we need to do more to shift people quickly from their unrealistic ‘rose-tinted' expectations of retirement. They must either increase their savings substantially or change their expectations of when they might retire and how much income they will receive.
"Auto Enrolment presents a once in a lifetime opportunity to reverse these trends. But for this to be successful we need a compelling Government communications campaign to make clear in simple and understandable terms the need to save for retirement."
One in five saving nothing for retirement
The Scottish Widows Pensions Index - looking at those between 30 years-old and state pension age who earn more than £10,000 per year - reveals that over a fifth of people are failing to save anything at all which is a two percentage point increase on last year.
Ian Naismith continues:
"People failing to make any kind of provision for their later years are in a particularly precarious position. Some may think that they will be able to fall back on the state pension, property or a partner's pension and whilst these options may provide some level of support, saving nothing for retirement could be a fast track to financial problems and serve poverty in later life."
Priorities above pensions
When looking at people's attitudes to saving for retirement, for nearly three quarters of the population other financial commitments are prioritised above paying into a pension. Paying off debts is a bigger priority for 30 per cent, whilst 40 percent of people cite general ‘living expenses'. For 16 percent, holidays and travelling come before retirement provision.
Commenting on these findings, Ian Naismith says:
"When we are faced with immediate financial commitments, such as bills and mortgage payments then it is right and proper to give these priority. However, taking a short-term view of your finances will not help to close the gap between the UK's current pension provision and the desired level of retirement income.
"Those putting holidays and travelling before saving for their pension need to urgently rethink their priorities to have any chance of enjoying a comfortable retirement."
Regional retirement weak spots
Looking at pension saving trends across the regions, the Scottish Widows Pension Report 2012 reveals that there are clear ‘weak spots' in planning for retirement. For instance, in the North East less than a third are saving enough, which could be attributed to a low percentage of employees in defined benefit schemes.
The second weakest region for retirement savings is the South West, where just 38 percent are making the necessary pension provisions, due, in part to the high proportion of self-employed people based there. Both of these regions have below-average income levels as well.
At the opposite end of the scale, the only regions with more than half saving adequately are Scotland and Yorkshire & the Humber.
This could be down to the high number of Scots who are employed by large public and private sector organisations, while Yorkshire & the Humber has a high percentage of public sector employees.
