Pension pot sizes needed to achieve a moderate or comfortable standard of living in retirement remain “staggeringly high”, say pension experts, despite the success of automatic enrolment.
According to the Pensions and Lifetime Savings Association’s newly-updated Retirement Living Standards, the cost of a minimum retirement living standard for a single person has fallen by £1,000 to £13,400. For a two-person household, it is £21,600, down from £22,400 a year previously. The lower figures are due to the impact of lower energy prices and changes in the public’s perception for this standard, the PLSA said.
However, the cost of a moderate standard of living for a single person has edged up by £400 to £31,700, while a two-person household would need £43,900, reflecting the impact of inflation.
For a comfortable retirement, a single person would need £43,900, rising to £60,600 for two-people.
According to the PLSA, a one-person household would need a pension pot worth between £330,000 – £490,000 to achieve a moderate retirement living standard, and a pot in excess of £540,000 to achieve a comfortable living standard.
While auto-enrolment contributions of 8% have created a “solid” starting point, the PLSA said saving 12% or more offers people a better chance of reaching the retirement they expect.
Zoe Alexander, director of policy and advocacy at the Pensions and Lifetime Savings Association, said: “While defaults may rise in the future, it’s important for savers to consider whether 8% will be enough for their goals.”
Gail Izat, managing director for workplace and retail intermediary at Standard Life, said: “The reality is that current minimum auto-enrolment contributions are unlikely to be enough for most people to achieve the lifestyle they hope for in retirement. Many people are lulled into a false sense of security by thinking that the default contribution levels will deliver the type of retirement they aspire to.
“Ultimately, we need a sustainable roadmap towards higher contributions which we hope the next phase of pensions review will take into account.”
Alexandra Loydon, group advice director at St. James’s Place said the figures should serve as a “wake up call” for savers to start thinking seriously about their pension.
“When comparing the PLSA figures to our recent financial health research, which found that 23% of UK adults believe they’ll only need a total retirement pot of £50,000 to live moderately well in retirement, it’s worrying that many people are underestimating their retirement needs.
“While it’s encouraging to see that the amount someone needs to secure a minimum standard of living in retirement has fallen to £13,400, it’s important to understand that this only covers your basic needs. It does not include a car, limiting you to one week-long holiday in the UK per year and eating out once a month.
“Retirement planning can feel daunting, but savers should use today’s figures from the PLSA as an incentive to consider the lifestyle they want later in life and start putting together a financial plan to help them get there. There are a range of online tools to help with this, and those in more complex scenarios should also consider speaking with a financial adviser if possible.”
Tom Selby, director of public policy at AJ Bell, warned people risk sleepwalking into retirement shock: “There is no getting away from the fact that the pension pot sizes needed to achieve the moderate or comfortable living standard, particularly for a one-person household, are staggeringly high.
“Automatic enrolment has been successful in boosting pensions participation in the UK but the harsh reality is that anyone on minimum contributions is at risk of falling well short of their retirement expectations. The big danger here is that without a scaling up of minimum contributions, millions of people will sleepwalk into a retirement shock and be forced to choose between working longer or living on less money in their later years.”
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