PARTNER INSIGHT: We are all living longer according to the Office for National Statistics - how can we effectively plan for our financial futures
Research by Royal London finds that the average UK earner will need a pension pot of £260,000 to maintain their living standards. It's called ‘the pension mountain' - the size of funds required by savers to afford a pension that keeps them in similar financial circumstances to their working life.
The figure has leaped from £150,000 to £260,000 since 2002. This figure could actually end up much higher, as younger generations face up to failing to afford to buy a house and then be hit with rental costs into retirement. The £260,000 figure assumes that a worker on an average wage of £27,000 will draw a state pension of £8,500 a year on retirement and have generally lower travel and mortgage costs in older age. This will mean they require more than £9,000 private pension income to help them match their previous living standards.
Fifteen years ago, a lower life expectancy and higher interest rates impacted on the pension pot figure. "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 Royal London personal finance specialist Helen Morrissey. "More worrying still, we can no longer assume that we will be mortgage-free homeowners in retirement."
The potential for rent costs to impact on living standards must be factored into people's funding strategy, she added. "For all of these reasons, we cannot afford to be complacent about current levels of retirement saving."
While the government's move to create an 8% mandatory pension contribution from a combination of the employer and employee from April 2019 is a "great start", it needs to work more quickly to "nudge people up" to more realistic savings levels. "Without this, many millions of people will face a sharp drop in living standards," Morrissey concludes
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