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Have you saved enough? Over 50s massively misjudge pension pots

Paloma Kubiak
Written By:
Paloma Kubiak
Posted:
Updated:
11/07/2016

The over 50s are misjudging the level of pension savings they need to have a decent income in retirement by half, a survey reveals. 

Saga Investment Services asked 1,500 people over 50 to estimate what annual income they’d need to fund their retirement and how much they thought they’d need to have saved to generate this level of income

To cover the essentials including rent or mortgage payments, the respondents said they’d need an average annual income of £15,200 which would be generated from a pension pot of £143,830.

However, Saga analysis found a pension pot of this size would only generate £7,940 in guaranteed annual income for life for a healthy 65-year old, a shortfall of almost 50%.

There were stark differences between the sexes, with men underestimating what they needed in their pension by 41%, women by 66%.

Saga also calculated how long the estimated pension pot would last in drawdown (where a pension is left invested) and found the average saver would run out of money after 13 years.

To lead a comfortable retirement – defined as having a holiday once or twice a year, inexpensive hobbies and eating out regularly – over 50s said they needed an annual income of £21,630. But the actual pension pot needed to generate this was around £400,000, way off the £194,000 they thought would be sufficient.

Those wanting a ‘luxurious’ lifestyle, which included going away on holiday frequently, having more expensive social activities and frequent home refurbishments, said they’d need £46,640 to live on and they estimated they’d need a pot of £419,520. But this would only generate £22,720, leaving a 51% shortfall in income.

Nici Audhlam-Gardiner, managing director of Saga Investment Services, said: “It’s worrying Britain’s over 50s are misjudging the level of savings they need to have a decent and comfortable retirement income.

“Our research found that 80% of people simply couldn’t begin to make an estimate of how much they need to save to get the lifestyle they want, with the result that they are severely low-balling their pension and savings plans. It’s vital people take into consideration all of the financial possibilities, sources of income and investment options to hit their retirement income goals.”