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The pension pot needed to avoid an uncomfortable retirement – or the ‘pension mountain’ – has grown in size in real terms by three quarters since 2002, from around £150,000 to £260,000, new research by Royal London has revealed.
In addition, falling levels of home ownership mean that younger generations who end up having to pay rent in retirement could need a total pot as high as £445,000 to avoid a slump in living standards when they stop work.
According to Royal London’s calculations, workers who can retire on two thirds of their pre-retirement wage should see no fall in their standard of living when they stop work. This means that, based on an average salary of around £27,000, a private pension income of just over £9,000 is needed in addition to the state pension.
Back in 2002/03, when interest rates were much higher and life expectancy was lower, a pension pot of around £150,000 would have delivered a private pension at this level through retirement. However, the pension mountain has grown since then to stand at roughly £260,000 today.
“This research is a reminder that when we save for retirement we are chasing a moving target,” commented Helen Morrissey, Personal Finance Specialist at Royal London. “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.”
“More worrying still, we can no longer assume that we will be mortgage-free homeowners in retirement,” she added. “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. For all of these reasons, we cannot afford to be complacent about current levels of retirement saving.”
If you need advice or assistance concerning pensions or other financial matters, contact our expert team today.
