Workers need to save £800 a month to afford ‘moderate’ retirement
The average worker on a full-time salary needs to save around £800 a month, or a quarter of their earnings, to afford a ‘moderate’ lifestyle in retirement, new analysis reveals.
Research from the Institute and Faculty of Actuaries (IFoA) shows a monthly saving of £799 over an entire working life would provide an income in retirement to allow for a two-week holiday in Europe plus a long weekend in the UK every year, a £46 weekly food shop and an annual clothing allowance of £750.
Workers who want a ‘comfortable’ lifestyle in retirement would need to save £1,755 a month, the calculations show. This would be enough for three weeks in Europe every year, a £56 weekly food shop and £1,000-£1,500 for clothing and footwear each year.
However, the IFoA warned that “a large proportion of the population” will not be on course to achieve an adequate lifestyle in retirement because they only contribute the bare minimum to their workplace pension as part of automatic enrolment (AE).
Under AE current rules, the minimum contribution is 8 per cent, which includes 4 per cent from employees.
Mark Williams, chair of the IFoA’s pensions board, said: “We appreciate that these savings goals are high, and to many, they will appear daunting. But as actuaries, it is our role to ‘do the maths’ and we believe that it is in the public interest to demonstrate the potential scale of under-saving, and the impact it could have on people’s retirement prospects.”
Worryingly, a poll by the IFoA found almost a third of UK workers do not know what constitutes a ‘good pension pot’ with a fifth considering a less than £100,000 pot to be sufficient. This would buy an annual pension of £2,825 at age 68 for a current 22 year old, according to the IFoA.
Steven Cameron, pensions director at Aegon, said: “This is a stark warning for workers that saving even for a ‘moderate’ retirement takes careful planning, starting as early as possible, and being realistic about the amount that they need to save every month.
“While auto enrolment has had a positive effect by raising the profile of retirement planning and encouraging millions of people to get into the savings habit, the current minimum contribution rates means many may be under-saving.”
What you can do now to boost your pension pot
“The first step is working how much you have to save to maintain your desired standard of living in retirement. For many, this will reflect their pre-retirement standard of living,” said Cameron.
He then suggests increasing the monthly contributions into your workplace pension.
“It’s also worthwhile looking at the employer contributions and make the most of what they offer. Some will match any additional contributions you pay pound for pound.
“It may also be worthwhile seeing a financial adviser so that you can benefit from advice that meets your personal needs and circumstances.”