UK tops EU league for gap between savings and comfortable retirement

The average person needs to increase their annual pension savings by an average of 10,300 a year to close the gap between current contributions and the amount needed to secure a comfortable retirement income, according to research carried out by Aviva and Deloitte.

The study found that 50-year-olds need to save an extra 6,200 a year, 40-year-olds 3,100 a year and 30-year-olds 1,800 a year to secure a pension income equivalent to 70 per cent of their pay, defined by Aviva as the amount required for a comfortable retirement.

The 10,300 average is skewed by the shortfall faced by those retiring in the next few years. The UK's average annual pensions gap totals 317.5bn, based on the 31 million UK adults set to retire between 2011 and 2051. The annual European pensions gap for individuals retiring over the next 40 years is 1.6 trillion, the study estimated. Germany has Europe's second biggest pension gap, at 9,700 per person, followed by the Republic of Ireland (7,600) and France (6,600).

Toby Strauss, chief executive of UK life at Aviva, described the new figures as "startling".

"We know from our research that many people in the UK are planning to work later into life, but this will not solve the issue fully. However, the problem is not without solution. By investing from an early age, even a small amount can make a big difference in closing the gap," said Strauss.

He said the research should act as a wake-up call for individuals and the government.

"Fortunately it is not too late for people to take action. Aviva believes that effective partnerships between the government and the private sector are crucial to solving this problem," said Strauss.

The government is currently consulting on several measures aimed at reforming the pension system, including a rise in the state pension age in 2016 and the abolition of the default retirement age. It is also reviewing plans for automatic enrolment into workplace pensions for low income workers from 2012, with a statement expected next month.

The income shortfall facing many workers retiring this year has been exacerbated by plunging annuity rates. The rates paid on annuities, bought by the vast majority of workers at retirement, last month reached their lowest level on record, according to Investment Life & Pensions Moneyfacts. It said the average annuity rate paid to a man had fallen by nearly 46 per cent since 1995, while the rates paid to women were down by 42 per cent over that period.

The average 65-year-old buying a "level annuity" now can expect an annual income of 647 for every 10,000 he has saved, down 6.3 per cent from a year ago.The equivalent annuity income for a 65-year-old woman has fallen by 5.6 per cent in the past year, with several providers reducing their rates over the summer.

And that income has to last for longer than ever before as life expectancy rises. Aviva research published this month found that each year of retirement for the average 55-year-old today will be funded by only two years' work. Today's over-55s are set to live for an average of 88 years but will retire six months after their 63rd birthday, on average, with typically 44 years in work and a retirement period of 25 years.