Savers Warned to Start Young or Risk Financial Difficulties During Retirement

It’s common knowledge that more people should be putting away more money for their retirement. It’s one of the few things every IFA and expert across the UK agrees on – the importance of activity and planning ahead for future financial needs. But in terms of exactly how much any given saver should be targeting and how they should be attempting to reach this target, these are questions that could do with being answered somewhat more clearly.

Which is precisely what the Office for National Statistics has attempted to do this week, releasing a report stating that on average, retired households in the United Kingdom spend £21,770 a year. So to round it down, this would mean advising a sensible minimum pension of £20,000 per year for the household in question. But the most important question by far is of course that of how the average person should go about ensuring that they have this kind of money available in later life.

Suffice to say, the report could come as something of a nasty surprise for hundreds of thousands of young adults who are currently not saving anything at all. Analysis carried out using the figures from the Office for National Statistics suggest that in order to reach this particular target, it would be necessary to begin saving hundreds of pounds every single month by the time you hit 25.

And for those who still have not started contributing significantly and proactively by the time they hit 40, getting anywhere near the £20,000 annual target could be difficult or even impossible.

In any instance where an individual qualifies for the full state pension, this equates to somewhere in the region of £8,000 per year. Which in turn means that £12,000 per year needs to come from elsewhere. But assuming you are earning somewhere in the region of the national average of £26,364, actually being able to save to such an extent to hit this kind of target means extensive and precise planning.

“Twenty thousand pounds on average national earnings is quite an ambitious target,” says Graham Slater of Haven IFA.

“It would have them replace three-quarters of their pay with pension. But I think it is an excellent target to aim at.”

According to his calculations, anyone looking to begin saving at the age of 25 with this particular target in mind would need to allocate just under £250 per month for their future pension. By contrast, those who start saving at the age of 35 would need to contribute a full 23% of their entire earnings.

“The biggest message from this analysis is the cost of delaying when you start to save,” says Graham.

“The challenge is, when they’re in their 20s and 30s people are trying to save, they’re trying to get on the housing ladder, they’re being young and having fun. There are lots of calls on that money.”

The key message therefore is relatively simple – seek immediate independent advice and begin generous pension savings contributions as early as possible, in order to avoid complications further down the line.