Warning over pension pots as some won’t be able to afford a haircut – here’s how much you should be saving
MILLIONS of Brits are at risk of running out of cash in retirement, according to new research.
Eight out of 10 people - or about 80 per cent - are unsure about how much they should be saving for later life, according to a survey by the Pensions and Lifetime Savings Association (PLSA).
This means about 30.4 million working age people are at risk of not saving enough to afford the comfortable lifestyle of their dreams once they retire.
Automatic enrolment into workplace pensions was introduced in 2012 to head off fears of a later life savings crisis.
Minimum contribution rates into workplace pensions are gradually being stepped up to encourage people to save more.
The minimum amount currently stands at 5 per cent, where 3 per cent comes from workers and 2 per cent from the employer.
Am I on track for a comfortable pension?
If you are only putting in the minimum amount for your workplace pension then you are not saving enough for a comfortable pension. Here's how much you'll need according to consumer group Which?
- Which? reckon that you need to be saving £131 into your pension a month from age 20 to be able to have a comfortable pension
- Anyone over 30 would have to save up to £198 a month.
- If you start as late as 50 you need to be saving a staggering £633 a month to be able to have a £26,000 a year income when you retire.
- These figures are assuming that your employer pays his or her part of your pension contributions.
- You will also receive a state pension depending on how much national insurance you have paid over your working life, the maximum amount you can receive is £164.35 a week.
This will rise to 8 per cent from April 2019, with firms adding an extra 2 per cent and savers adding 1 per cent.
But many people wrongly assume that this minimum level is the target they should be aiming for to be comfortably off, the report found
The report calls for the introduction of retirement income targets showing the lifestyle someone could afford depending on their income - the approach used in Australia.
The Association of Superannuation Funds of Australia (ASFA) developed a guide to retirees’ financial needs in later life.
It found that "a modest retirement" in Australia would offer occasional evenings out at restaurants that have cheap food. But people on this plan won't have money for home improvements and they'll be driving an old car.
People relying on state pension or "basic retirement" will only be able to afford day trips in thei own city, they will struggle to afford repairs for their car and they will rely on friends to cut their hair.
A saver on basic retirement will also not have enough cash for a private health insurance and no budget to fix home problems like a leaky roof.
Nigel Peaple, director of policy and research at the PLSA, said: "Millions of savers are in the dark about whether they're on track for the lifestyle they want in retirement.
"With future generations unlikely to have the same levels of property wealth, or final salary pensions, as current retirees do, it's vital more is done to ensure people can cover the costs of later life."
Your definition of a comfortable lifestyle is up to you, but if you think you will be going on regular holidays or taking up some expensive holidays in your old age you will need to put more money away.
Research by found that on average retired couples need around 18,000 a year to cover food, utilities, transport and housing costs.
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This rises to £26,000 for couples who want to be able to go on holiday and take part in other leisure activities.
To be able to have an income of £26,000 a year, as a couple you will probably need about £210,000 saved up as well as your state pension before you stop working.
A Department for Work and Pensions (DWP) spokesman said: "Automatic enrolment was introduced so that people who were previously saving nothing towards their retirement could start saving into a workplace pension. Almost 10 million people have been enrolled so far.
REALITY CHEQUE How much money do I need to save to retire and live comfortably?
"We have brought in phased contribution rate increases for workplace pensions and are committed to
an ongoing review to ensure we continue to balance the need to save with everyday costs.
"For those who would like guidance on their pension, Pension Wise is a free and impartial government service which can help."
What is the retirement age in the UK?
GOT your sights set on retiring on a sunny beach? You may need to wait longer than you had hoped.
- The current age for retirement for men is 65, and for many years was 60 for women but has changed.
- For women born between April 6, 1950, and December 5, 1953, the age you can receive your state pension is now 64 and is set to rise again in November 2018. It will rise further to 68 for both men and women by 2037.
- To calculate the exact date that you will access the money, you can use the
- More questions? Here's our definitive guide to life as state pensioner.
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