Are we saving enough for retirement?

Our latest Quarterly Consumer Report has found that many people are generally clueless about how much money they need for a comfortable life in retirement. Do you think you’ll have enough when you retire?

The word ‘pension’ should be a positive thing – it should signify your ability to squirrel away your earnings to live a comfortable life in retirement. It represents your commitment to prudence and planning, and reflects the wealth that you’ve managed to accumulate throughout your working life.

Unfortunately, that seven letter word appears to be the cause of distress, concern and out-right confusion amongst many. Our latest Quarterly Consumer Report paints a gloomy picture of people’s attitudes and engagement with saving for their later years.

The growing problem with pensions

We revealed a ticking time bomb of people who are not saving for their retirement, with half of people still not paying in to a pension and more than a third saying they have no intention of doing so in the near future.

Just over two in five say that they can’t afford to save, while 8% said they just hadn’t got around to it yet. And while the majority of people we spoke to believe they’ll be comfortable in retirement, their perception of the level of income they’d need to deliver that standard of living appears to be out of sync.

The average amount of money people think they’d need to live off when they retire is £375.30 per week (or £19,500 a year). Assuming they expect to receive the basic state pension (at the new enhanced rate of £144 a week), people think they’ll need around £13,800 on top of the state pension to live comfortably. This would equate to a pension pot of around £255,000 on a fixed annuity, or £370,000 on an index-linked annuity.

A shock in store for retirees

But 57% of people didn’t know what size of pension pot they’d need to generate this level of income. On top of this, our report found that many people simply didn’t know how much money they’d get per year from a set pension pot. Four in ten believed they could comfortably live on a £100,000 pension pot, which would give them only £5,500 a year from a fixed annuity or £3,500 from an index-linked annuity – thousands less than the £13,800 they think they’d need.

As our report concludes – many people will face a nasty shock when they realise how much money they’ll have to live on in retirement. Do you feel well prepared for your own retirement? Do you feel you understand how much money you’d need to save into a pension to live comfortably when you retire?

richard says:

13 February 2013

I’ve been retired for 22 years – I carefully saved ‘enough’ with my pension until the present MINORITY “government” decided to RAISE the amount needed for health care (though the other two parties and an independent review disagreed the amount) beyond my capabilities to be able also leave an inheritance my dearest wish for my children – and at the same time REDUCE the interest rate of my cash assets to 10% of what it was so the income is now derisory . So I will ensure my assets are no longer traceable – I will get rid of it until I can ensure I will not pay for long term health care. A complete travesty after a life time of hard work – paying every single penny of tax – and saving (going without holidays to do so) – unlike the rich – MPs – businesses – and many 1000s of irresponsible persons – I even ensured I kept healthy. I will campaign vigorously to ensure this “government” is never ever elected in my life time. I am totally appalled that 120,000 pensioners A YEAR will be in the same position as myself. Where is the fairness or reason to save?

william says:

I’ve been paying into pension pots for over 30 years, and all I can see if the value going down year on year, with OOT charges, and amazingly useless fund managers. Why can’t I manage it myself, I’d do a much better job.

Malcolm R says:

William, I think you can manage it yourself with a Self Invested Personal Pension. Is that correct Which?

jennifer says:

25 March 2013

I put money in for 20 years, it vanished! it has now has only £1000 in it! so what was the point in that? its all gone.

I cant afford to save more. so i wont have a pension because basically these people stole my money.

Work all your life in the public sector – the only way to seemingly get a half decent pension, because they’ll take concerted action to protect themselves using taxpayers money.
Otherwise you must take advantage of any employer-contributed scheme – but how you add money yourself to this pot will depend on how you can balance an acceptable lifestyle, including trying to buy your house, against savings. When I started work every penny for a number of years was spent on just surviving with a small family – not much left to squirrel away. But these are the years that matter in building up a fund. At this time it is also very difficult to think 40 or 50 years ahead, with no way of knowing how much money you might need.
Possibly the best way to prepare for the future is to put as much into property as you can – it will always be in short supply – and to use as much of your allowance in an ISA as possible to build up a portfolio stocks and shares.
It’s no good blaming the Government – they’ve all met the same insuperable problems of dealing with a larger longer-lived aged community and fewer taxpayers to fund them.

nick davies says:

Slagging off the public sector is unhelpful. Many public sector and related schemes are ‘funded’ schemes no different to any other and usually run by a trustee company. I currently pay 7.5% of my salary, my employer 16% to get a defined benefit pension. Gold plated maybe, but that gold plating doesn’t come cheap.

Nick Davies – it certainly does not come cheap – if it is a public sector employer that is contributing 16% then that is a very generous contribution from the taxpayer. Your net contribution of around 4.5% – 6% of your salary to get a 23.5% pot is a pretty good deal. Particularly as it seems immune from the vagaries of the investment market.
Incidentally, i was not slagging off the public sector, but drawing attention to the generous terms that many others cannot gain. Governments have repeatedly tried to put all pensions on a more equitable basis, but in the face of (understandable) concerted resistance from those who benefit, we are still left with a two-tier system that is not wholly self-funded when the taxpayer picks up part of the bill.

A.B. says:

I don’t think anyone should save for a pension as long as they have an inflationary policy in place. Over a lifetime saving for a pension is useless… £10,000 today will probably not buy you a slice of bread when you retire if you are just starting on your career. As for being lured into being a debt slave with a mortgage…. now there’s the biggest con game …. when they report consumer debt, they exclude mortgages, what a farce. A mortgage is a DEBT and a massive millstone that they con you into chaining around your own neck. You only own the debt not the house.. and they can then make you upkeep it for them and pay the bills…. LOL. And very few people can see how they enslave themselves. And by the time you get to die, if you have got any money they will take as much as they can in care home fees or inheritance taxes.

A.B. – as you will not be able to live on the State pension, you will then be relying on benefits from other hard pressed taxpayers to support you – not very fair is it?
Your pension pot will increase in value as you save – stocks shares and bonds will generally see to that.
As for your house – you can either rent or buy – both require a big chunk of income, and with one you have an asset that you can sell if necessary, with the other you just purchase the asset for your landlord.

As i said in a previous comment, i had a pension for over 20 years, the pot which once had a lot of money in now has £1000.

It was a total waste of money putting it into a pension, i might as well have set my money on fire, im very annoyed about this.

14 February 2013

Anyone who puts money in a pension that invests in the stock market/bonds should be aware that a massive chunk is stolen, uh, taken in charges and management fees, spreads on transactions both buying and selling, stamp duty and often a lot of churn simply to justify management fees. The prices obtained are often very poor for funds because of illegal front running by high frequency trading. The ‘market’ is rigged and no guarantee whatsoever that you will get anywhere near what you put into it. The ‘market’ maybe fine for a while but when shares fall they can do so very fast indeed so much so that several years gains can be lost in a week or even more usually in less than a day

A.B. Perhaps you would like to support these allegations with facts? If you want someone to do all the investment work for you then you must expect to pay them. There are plenty of good financial advisers who will use their expertise and do it for a fair price. The alternative, if you aren’t convinced, is to learn to do it yourself and to save that outlay (maybe at the expense of poor purchases and therefore significant losses).
Since all pension funds use investments to successfully generate income for their members your view may not be in the majority. As wavechange hints, what positive actions would you take to prepare an income for your retirement?

wavechange says:

A.B.

You have made your criticisms. Fair enough, but have you any constructive suggestions about how people should prepare for retirement?

les says:

2 March 2013

why doesnt your state pension get payed to your spouse when you die ???you,ve paid in for 44 years it belongs to you ,,if you die before retirement they keep it if you die after retirement they keep it ,,,,,even you family cant just take your money unless it,s been left to them in a will ,,,,,they arnt giving you any thing it,s your money thats payed to you,,,,they must make billions ,but it,s never mentioned,,so is this legal,,,,,,can they take money that belongs to you???????? it does,nt state this when you start paying into it ,,,,,,,so no different to any other mis sold product

3 March 2013

Why doesn’t the state pension stop paying out when people turn 80 given they’ve only paid in enough to last that long?

The money saved from those generous enough to die early goes to pay the pensions of those selfish enough to live to be 100. That’s the way pensions of any kind and all annuities work.

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