The UK is facing up to a £1.2trn personal pension shortfall in individual retirement income, warns Hewitt Associates, as the gap between people's benefit expectations and the reality of retirement income has increased by 50 per cent over six years.

The firm's second omnibus survey on attitudes towards saving for retirement in the UK shows that the discrepancy equates to £1.2trn - or 80 per cent of the UK's GDP in 2008.

Based on the current level of contributions to a non-state pension, expected age of retirement and individuals' predictions of their level of pension income, the survey results compare to 2004's figure of a £0.8trn gap between expectation and reality.

This relates to £50,000 per person of working age, and is equivalent to two years of gross salary for the average UK worker (£25,000).

"Savings for retirement is a major issue and one of the largest socio-economic problems to be faced by the new UK government," commented Lynda Whitney, pension consultant at Hewitt Associates. "This saving gap cannot be met through higher state benefits funded by taxing future generations as the proportion of pensioners is increasing relative to the working population. People need to wake up to the fact they will have to save more, work longer and/or live on a lower pension in retirement."

In addition, 42 per cent of workers do not take advantage of an employer-sponsored scheme, and 27 per cent of workers are members of a private sector scheme. A further 29 per cent are members of a public sector pension scheme.

Hewitt suggests that members adjust their expectations as the government and employers address the issue of awareness. A 'triangle of compromise' is necessary - pay more, work longer or receive less. However, only ten per cent of respondents to the survey were prepared to retire on less money, while 27 per cent were willing to pay higher pension contributions, a fall from 46 per cent in 2004. Sixteen per cent were unable to come to a decision.

"On one level it would seem that higher pension contributions and an acceptance that you will have to retire later are both going to be required. Raising the state pension age may encourage later retirement but other questions remain - will further increases in NEST be needed, or is compulsion the answer?" said Whitney.

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