Average earners need £300k pension pot for comfortable retirement
The government’s recent auto-enrolment review highlighted that to maintain a worker’s current lifestyle into retirement, people should aim for a target percentage of income from their pre-retirement years.
On a numerical level, it said that those with average earnings of £27,000 should target an income equivalent to two thirds of their working age income. For average earners, the figure’s £18,000 a year or £1,500 a month.
But analysis from pension provider Aegon has revealed that people on average earnings require a pension pot of £301,500 in order to maintain their current lifestyle into their golden years.
For someone on the full state pension of £691 a month, they would need a further £809 a month from private and workplace pensions to meet the target. Based on annuity rates for a 65-year-old in good health, a pension pot of £301,500 would get them a guaranteed income for life of £808 per month.
The equivalent retirement pot needed for those earning £13,000 and £56,000 is £65,300 and £612,700 respectively.
Further, the recent auto-enrolment review also identified that 12 million people are under saving.
Steven Cameron, pensions director at Aegon, said: “It’s perhaps not surprising that people are under saving when you see how much generating an annual income of £18,000 costs. The amount is so high because life expectancies have grown significantly in recent decades and long-term interest rates, on which annuities are based are currently very low. All these figures assume that people will be able to top up their income with the full state pension of £8,300 per year, but it’s important to check what you’re actually due as many people will receive less.”
Cameron added that while auto-enrolment is helping to plug the pension gap for employees, many will face a shortfall which won’t go away on its own.
“The earlier you take steps to put a bit more aside, the better, and a good New Year’s Resolution would be to ask your employer if they’d be prepared to match any increase you make with an increased employer contribution”, he said.