If you are paid an average wage and rent a home, you will need to save a pension pot of £445,000 to enjoy just a basic lifestyle when you retire, according to a new report.
Even if you have bought and paid for your own home by the time you stop working, you will still need savings of £260,000.
And the bad news is if you are paying into the government’s auto-enrolment pension, you are likely to only have saved about the half the money you will need.
The shocking news comes from former pensions minister Steve Webb, now a consultant with financial firm Royal London.
Renters need to save £450,000
He reckons that an average person needs about £9,000 a year on top of their state pension to cover the basics and with a safeguard against inflation built in, this will mean having a pension fund of £260,000.
But renters will need around £6,554 a year to pay for their homes – taking the state pension top up past £15,000 a year and the savings needed to generate this income to £445,000.
Renting social housing will add an extra £125,000 to the basic pot – taking the amount to £385,000.
Statistics about the size of the average pension fund on retirement vary, but the agree the figure is between £30,000 and £40,000 – far short of the amount Webb has calculated most people need to enjoy the basics.
Workers need to save more
“If our retirement pot is going to support us through a longer retirement and in an era of lower interest rates, we are going to need to build a much bigger pot than in the past,” said Webb.
“We can no longer assume that we will be mortgage-free homeowners in retirement. For those unable to get on the property ladder during their working life, a large private rental bill needs to be factored in to retirement planning.
“The pension mountain has grown by about 75% in real terms since 2002/03. This is partly because we are living longer and partly because interest rates are much lower, so a given pension pot generates a smaller income.”
