To secure an annual income of £13,500 at age 65 - after taking the 25% tax-free lump sum – currently requires a pension pot of £250,000. A person saving at the “average rate” – i.e making only the contributions required to generate the average UK pension pot size of £30,000** by age 65 - would need to save for 95 years to reach the £250,000 mark.
This means that a baby born in 2014 would need to have started making pension contributions (or someone else have started contributing on their behalf) in 1984 — the year Ghostbusters hit the big screen and Band Aid topped the charts – to be able to retire on half the current average wage.
To achieve an annual pension income of £13,500 without taking the tax-free lump sum requires a pot of £188k. The average person born in 2014 making average contributions would need to have started saving in 1991 in order to build up a pot this size.
The reality is most people are saving nowhere near enough. For a 21-year old to build up a £250k pension pot and receive half the average salary when they turn 65 (after the tax-free lump sum), they would need to start contributing £1,734 per year — or 8.3 times more than the current average rate of saving. To achieve the same retirement income without the tax-free lump sum (a pension pot of £188k), they would need to contribute £1,305 per year — or 6.3 times more than they are currently saving.
John Fox, Managing Director, Liberty SIPP, commented:
“I’m sure the pensions industry is starting to sound like a broken record, but people are saving way too little and are starting way too late. Either we do something about this or we invent a time capsule so that a baby born in 2014 can start saving for their pension in the mid eighties in order to get a half decent retirement in 65 years’ time.
“Such concerns are unlikely to trouble Prince George when he celebrates his first birthday this month. But his contemporaries - who are only able to save for their retirement at the average rate - are already 29 years late in starting if they want to retire with a pension worth half the average Briton’s income.
“Princes seldom have to worry about their pension plans, but for everyone else this is a real and pressing issue.”
