The Average Person Needs £260,000 for Retirement
Research carried out by the Pension & Lifetime Savings Association shows that the majority of people would find it much easier to plan for retirement if they had income targets to guide them. The trade body is proposing three target levels covering ‘minimum’, ‘modest’ and ‘comfortable’ incomes and recommends carefully-chosen titles to ensure they are correctly interpreted. This approach is already used in Australia where it is said to make it much easier for savers to work out if they are saving enough.
According to a recent report entitled “Will we ever summit the pension’s mountain?”1 the amount that the average person will need to fund a comfortable retirement, based on someone opting to stop work at 65 and buying a single-life annuity with inflation protection, has reached £260,000.
The report also points out that those who don’t make it onto the housing ladder will need to pay rent during their retirement years, so for them the figure will be even higher at £445,000. In arriving at these figures, the research assumed average earnings of £27,000 a year, and a full state pension of just over £8,500.
Make an early start
The sooner you start, the longer your contribution has to grow. One of the most attractive features of pension saving is the tax relief. If you make contributions to a pension, or if your employer deducts your payments from your salary, you automatically get 20% tax relief as an additional deposit into your pension pot. If you are a higher-rate taxpayer you can claim an extra 20%, while those paying additional-rate tax can claim back an extra 25%. When you retire, you can take 25% of your savings as a tax-free lump sum, though not necessarily all in one go.
If you save into a workplace pension, your employer should match some or all of your contributions, providing a welcome boost to your pension.
Getting the right advice
Everyone would like to look forward to a financially-comfortable retirement that can be enjoyed rather than endured. Taking financial advice will ensure that you put the right pension plans in place from the outset and know what your savings target should be. You’ll also be offered regular reviews to help ensure you keep your pension savings on track.
Royal London, 2018