If you’re planning to retire on a comfortable pension, then you’d better think about working well into your seventies, according to research by a leading financial firm.
No one will save enough to equal the gold-plated pensions enjoyed by today’s older generation, says Royal London, the UK’s largest mutual life, pensions and investment company.
The firm examined how long people would have to work if they wanted to collect the same level of pension payments as their parents if they stick to government guidelines and pay the minimum 8% of salary into a workplace auto enrolment scheme or private pension.
After crunching the numbers, the firm discovered that anyone wanting the coveted gold standard of two-thirds of final salary as a pension, with index linking and a widow’s pension included, would have to stay working until they reached 77 years old.
Unattainable goal for most savers
Even if a worker decided to accept half final salary as a pension, they would have to work until the age of 71.
Both scenarios involve someone starting a pension at 22 years old and working continuously without missing any pension contributions for at least 49 years.
The finances work out even worse for those who delay saving into a pension.
Someone who starts a pension at 35 years old expecting the gold standard pension, they would have to work until 79 years old, while someone waiting until 45 to begin retirement saving would still be working well into their eighties.
Holy grail of pensions
So how much would someone have to save to secure a gold standard pension?
Royal London says they looked at the figures and reckon workers would have to put aside a fifth of their salary from age 22 onwards to retire on two-thirds final salary at the state retirement age.
The silver standard of half final salary would need savings of around 11% of earnings each year.
“Effectively this holy grail of pensions, the gold standard, is not attainable for around seven out of 10 workers on an average salary,” said the firm’s pension spokesman Steve Webb.
“Getting people to save through auto enrolment is a good thing for the saver and the government, but putting aside the minimum contribution is simply not enough to pay a pension that equals what the parents of today’s workers receive.”
