Here’s a nice, big figure to spoil your Wednesday. The typical person will have to save £260,000 just to have a basic income in retirement. And that basic income is just £9,000 on top of the state pension which if you qualify for the full one is currently worth about £8,500 a year. So that’s a total income of £17,500 a year.
The £260,000 figure is undeniably huge. But there’s worse: the same report from Royal London says that the retirement nest egg for someone unable to get on the property ladder would be £445,000 because they will need extra income to pay rent in their retirement.
What is worrying is that few of us comes anywhere near even the £260,000 figure. Royal London says that the average sum saved into pension pots is between £30,000-40,000. Some of us – on the whole, those working in the public sector - are lucky enough to have final salary pension schemes. But if you’re in the private sector, are self-employed or not working then you will have to build up your own pension pot.
Royal London’s pension guru Sir Steve Webb has called his report Will we ever summit the Pensions Mountain? He points out that just 15 years ago, a pension pot of £150,000 would have provided a pension income of £9,000 but today’s low interest rates and higher life expectancy has resulted in the 75% increase in the figure.
So: depressing news all around. Such a huge figure might seem impossible and so unachievable that it’s hardly worth the bother in saving. But that would be wrong. Yes, £260,000 is a massive figure. However don’t forget that you get tax relief on your pension contributions: so it actually costs a basic rate taxpayer £80 to save £100 in a pension.
I don’t have a pension pot worth anything like £260,000. But I do have other savings and investments in tax-free Isas. I might not get upfront tax relief on these but when I take money out from them – as I will when I’m no longer working – then I’m not taxed on it then. Income from pensions is taxable. My Isas are part of my retirement savings just as my pensions are. I’ve got past pensions from former employers too. It’s really important to get a picture of what state pension you’ll get (see here) and also, you should make sure you know where all your other pensions are – you can check here.
And if you want more information on pensions, check out our guides here – and our new film on Asset TV here!