Posted on: 7th Mar 2019
Saving for is extremely important. However, knowing exactly how much to put away can be confusing. The simple answer is to save as much as you can, especially as retirement can last for 30 years or longer depending on when you stop working. According to Scottish Widows’ 2018 Report, 50 per cent of workers feel they aren’t preparing adequately for retirement.
The average UK pot: when to start saving
According to research by insurer Royal London (May 2018), you will need a pension pot of £260,000 if you want a comfortable retirement. This would provide a pension income of just over £9,000 a year in addition to the new state pension of £8,546.20 a year.
This is calculated based on an assumed retirement age of 65 and that the pension fund is used to buy an annuity which rises each year to protect against inflation. However, it does not have any provision for a surviving spouse or partner. According to Statista, the inflation rate will rise to 2.17 per cent this year compared to last year.
What’s good is that many more people are saving for a retirement thanks to auto-enrolment. From 6th April 2019, the minimum employee contribution will increase to 5 per cent whilst employers must pay 3 per cent. However, it is advised that you save more if you wish for a comfortable retirement. You can use a pension calculator to estimate your retirement income.
Building a pension pot from the age of 30
Auto-enrolment has meant that the number of under 30s saving enough for retirement has risen by 9 per cent, according to the Adequate Index report by Scottish Widows in 2018. The report also found that 39 per cent of UK workers aged 22-29 years old are now saving enough for retirement. Regardless, 21 per cent of young people are still not saving for later life, with 20 per cent saving significantly less than 12 per cent of their income. This is the minimum recommended by Scottish Widows.
According to calculations by consumer association “Which?”, a couple aged 30 must save £337 a month if they have no current pension savings and want £206,500 at the state pension retirement age. This is the amount needed to provide an annual household income of £26,000 a year from income drawdown and assumes an annual savings interest rate of 3 per cent.
These figures are based on the assumption that a 20 per cent tax relief is received on pension contributions and the income from private pension savings and the state pension is combines. These figures are also shown in today’s money. Contributions will need to keep pace with inflation and the rising costs of living if you wish to save the future equivalent.
Saving a good pension pot at 45
54 per cent of those aged between 40 and 60 years old say they wish to save but cannot afford it, according to No picnic for Sandwich Generation as finances are spread too thinly, a press release issued in September 2018 by LV=. People in this age group have average pension savings of just £60,000. If they expect these funds to last around 20 years, their monthly income would be £250. According to “Which?”, couples who wait until the age of 40 to start saving will need to put away £487 a month to provide an annual income of £26,000.
Saving a good pension pot at 55
To achieve an annual income of £23,000 at retirement, someone who has left their pension saving to their 50s would need to save £1,445 a month. If you are in your 50s, be sure to check when you will receive your State . According to Research by YouGov, 25 per cent of people between the ages of 50 and 64 are unaware of their state pension age.
If you haven’t already, make sure you join your company pension scheme as soon as possible. Employer contributions will be invaluable in helping you build your pension pot. Though this should happen in autoenrollment anyway, try to pay in more than the minimum. If you are self-employed, be sure to set up your own personal pension.
- Get professional advice if you’re not sure how much you should save
- Don’t rely on the State Pension for a comfortable retirement, especially as it continues to be pushed back
- Think carefully about how much you will need in retirement and make a plan
- Stay within the pension contribution limits (£40,000 or 100 per cent of your salary, 2018-2020)
Thinking about whether you are saving enough can be quite worrying, but it doesn’t have to be. Turning to an independent financial adviser can truly benefit you in the long run. Get in touch with Haven IFA today to see how we can help get you ready for an enjoyable retirement.