Think your retirement savings are on track? Think again - video

You could be facing a pension shortfall of thousands, a new report warns

Around 70,000 people could miss out on their state pension (Getty)

Millions are facing a retirement income gap, a new report reveals. The latest Aviva Real Retirement Report shows that a typical working over-45 year old faces a £8,955 annual retirement income gap based on their current savings and investments.

It means they will be forced to rely heavily on a state pension that will still leave them short, warns Aviva pension expert John Lawson. In an exclusive video interview with The Independent he says people facing a shortfall need to start to take action now or potentially face financial problems later.

In the video John explains that by just putting around £86 an extra into retirement savings, a typical 45 year old would solve the future shortfall. If you’re 55, he explains, solving the shortfall problem will cost more – you’d need to stash an extra £179 a month into your pension savings.

The report reveals that over-45s, who are not yet retired, typically expect to need an annual income of £12,590 from their savings and investments when they retire.

But Aviva’s analysis shows their typical current savings and investments only amount to £53,793, which would give an income of £3,117 a year if an annuity is bought or £3,635 each year if invested in a drawdown plan over 25 years.

This means the typical person only has enough private savings to finance 29 per cent of their target income: leaving them with a potentially crippling £8,955 retirement income gap every year before the state pension is taken into account.

Today’s average state pension income of £6,656 would bring their annual shortfall down to £2,299 in retirement. It means that the typical person is relying on the state pension to fund more than half of their expected retirement income. But not even the new flat rate state pension – offering a maximum of around £7,800 to those who will qualify for it from April 2016 – will fully bridge the gap between their expectations and reality.

Clive Bolton, retirement director at Aviva UK Life, said: “These findings should encourage every person still in work to think hard about their retirement finances.”