Work longer to fund retirement

ONE in ten young workers will have to stay in a job until they are 86 to escape poverty in retirement, a new report warns.

Even the average 25-year-old will have to work until 72 - 7 years beyond the current state retirement age of 65.

The problem stems from the closure of company pension schemes linked to final salary, under-performing share investments and the failure of workers to save enough.

Older employees with company pensions enjoyed high payouts, says the study by actuaries Hewitt Bacon & Woodrow.

A typical 65-year-old could expect a guaranteed income worth two-thirds of their salary at retirement if they started saving at 25.

But a 25-year-old saving from today would have to work for 47 years – until they are 72 – to get the same pension because their money would be unlikely to grow as quickly.

Companies closing final salary schemes switch younger workers into ?defined contribution‘ plans reliant on how shares perform.

And while about 20% of earnings are saved into the average final salary scheme, the figure for defined contribution pensions is half that.

The actuaries‘ projections are based on 5,000 computer simulations and assume 10% of salary a year is saved.

While there is a one in ten chance of reaching a two-thirds pension by the age of 59, there is the same chance of having to wait until 86.