A study by Aviva and Deloitte, released on the 22nd September 2010, shows that the UK now has the largest pension shortfall in Europe. It is estimated that the average individual will have to save £10,300 a year to make up the pensions income gap. What does this mean for those planning their retirement and how can people get back on track with savings?

What is the Pensions Income Gap?

This term describes the difference between the income that an individual is likely to have to spend in retirement and the income that would allow them to live comfortably. The UK shortfall, according to this research, shows that people will need to save an additional £10,300 a year each to bridge the gap between financial security and reality. The study covers those that will reach retirement age between 2011 and 2051.

The UK Now Has the Largest Pension Shortfall in Europe

On an individual basis the UK's average pensions gap stands at £10,300. This puts the country at the top of the shortfall table for Europe. Close to home, the Republic of Ireland is third in the table with a shortfall of £7,600 per person. Germany is second highest with £9,700. France and Spain are fourth and fifth with respective gaps of £6,600 and £5,900.

On the whole, Western European countries are hardest hit, most likely because they have higher population figures and higher average salary levels. This will, for example, result in an increased number of people of retirement age with greater financial expectations and needs than in other European countries.

Is There a Solution to the Pensions Gap?

The CEO of Aviva's UK Life, Toby Strauss, advises that the gap may be less of a problem for those that start to save for retirement early as: "the younger a person is when they start putting money away, the more time they have to build up a sufficient fund to provide the lifestyle they desire in retirement." Working past retirement age is acknowledged as a potential solution for some but he is also quoted as saying that this "will not solve the issue fully."

Dealing With Pension Shortfall Close to Retirement

Those approaching retirement age may not be able to save enough in the time they have available to make up possible gaps in income. The first step for many may be to assess how much money they are likely to have when retired. For example, it may well be worth pulling in company and private pension forecasts and getting a state pension forecast. Then, creating a retirement budget to estimate spending needs could help show potential shortfalls.

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