UK pension pots will run out in just five years
New warning that average pension pots aren’t large enough.
Over the last 12 months, savers added an average £2,671.60 towards their pension pots, according to new figures from financial services company True Potential.
Saving that amount over a 45-year career would give a final pension pot of £120,213.
That might sound like a lot, but over the course of a 20-year retirement, it would provide pensioners just £6,011 a year to live on. Compare this to the average desired income of £23,457 per year, and the shortfall is obvious.
In fact, you’d need a fund of £469,140 to draw from to make that happen. And you’d need to put away £10,425 every year to accumulate that pot.
Where do these figures come from?
True Potential surveyed the habits of over 8,000 savers to produce the above findings. But perhaps our desires are simply unrealistic and unachievable.
Average annual earnings are £26,500, according to the most recent Office for National Statistics numbers. After tax, rent or mortgage payments, bills, food, and all other costs, putting away £10,425 per year is simply not an attainable target for most of us.
But what the research does highlight is the prime importance of planning for the future.
Earlier this year, the National Employment Savings Trust said that a £15,000 a year retirement income was the ‘tipping point’, and pensioners living above that figure had a “significant” improvement in their lives than those below.
However, there are many factors to consider though when working out how much a ‘comfortable’ retirement costs. A retiree who owns their own home, just as one example, will need considerably less money than someone who will have to pay rent throughout retirement.
Lifestyle ambitions for retirement will also drastically affect the required sum of money in the pot. Learn how to work out how much you need to save for retirement with our detailed guide.
Keep track of your retirement savings every step of the way with lovemoney.com's new Plans service
An “impoverished retirement”
True Potential Managing Partner David Harrison comments that the figures show that “Britain is sleepwalking towards an impoverished retirement”, and that many people will never reach their retirement goals.
He goes on to describe the need for “far better personal finance education and far simpler products that allow savers to assess risk properly and make the right decision for themselves.”
What about the State Pension?
The State Pension currently stands at £113.10 per week. If you will retire after 6th April 2016, this will rise to be no less than £148.40 (the exact sum may be adjusted between now and then), but you’ll need 35 years of full National Insurance contributions to get that amount.
State Pension payments are currently adjusted yearly in line with a 'triple-locked' growth guarantee which promises the higher of the average increase in UK earnings, the Consumer Prices Index measure of inflation the previous September, or 2.5%.
While the current figure could provide you with an extra £5,881.20 a year, bringing the average pension up to £11,892.20 (based on True Potential’s averages), there are growing concerns that the State Pension may not exist in the future as it may be unsustainable.
If you retire after 6th April 2016, you’ll get £7,716.80 a year and still fall short of the target, drawing £13,727.80 every year. However, you’d still be much closer to that £15,000 tipping point.
Keep track of your retirement savings every step of the way with lovemoney.com's new Plans service
Gender gap
While the amount of money British people are stashing away has been increasing steadily over the last 12 months, women are putting substantially less away than men.
Men were putting an average of £3,321.17 per year aside, while women were only adding £2046.40 to their pots.
Regional gap
In Northern Ireland, savers were found to be building funds sufficient to last just three and a half years, while Scottish people could expect five years, Welsh savers just over four years, and Londoners five and a half years.
Keep track of your retirement savings every step of the way with lovemoney.com's new Plans service
How big does a pension pot have to be for a 'comfortable' retirement? Is the average suggested just too high? Share your thoughts in the Comments below.
More on pensions:
Pensioners failing to claim benefits they are entitled to
Why the State Pension is unsustainable
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