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Retirement

‘Mr Average’ to work until 80

Your Money
Written By:
Your Money
Posted:
Updated:
24/06/2013

The average worker contributing 8% of their salary under auto-enrolment needs to work until age 80 to keep that income in retirement if they take their 25% tax-free lump sum.

With the average male life expectancy until age 85, this gives him just five years to enjoy his retirement. The average female life expectancy is age 89, giving her nine years to enjoy hers.

According to SIPP provider, Liberty SIPP, if ‘Mr Average’ chooses not to take his tax-free lump sum, he would still be working at the age of 77 just to maintain the same level of income in retirement.

However, if this person is prepared to retire on half his working income – £13,250, but take all his tax-free cash, he will still need to work until the age of 74. 

To secure an income of £26,500 in retirement, with no tax-free lump sum, according to Liberty SIPP, would require a pension pot of £301,700 (retiring at 77).
It would require a pension pot of £349,300 and retiring at 80 if taking the 25% tax-free lump sum.

John Fox, managing director, Liberty SIPP, said:”These calculations highlight how Mr and Mrs Average are heading for a retirement that will be significantly below average. It’s important that people get their heads around how desperate things will be in the latter years of their life if they continue as they are.

“To maintain an income equivalent to the average UK wage, and take your tax-free cash, requires a pension pot just shy of £350,000. Even taking a 50% drop in income, which is common, will require Mr Average to work until the age of 74.

“There is no magic solution to the pensions crisis we are facing. People need to start putting more money aside and many will have to work for much, much longer than their parents.”

The average UK pension pot upon retirement, according to the National Association of Pension Funds, is just £30,000.