Urgent retirement warning for anyone on average £35k salary – do you need to act?
Plus, find out what the Government is expected to do with pensions as part of a huge shake-up
POT LUCK Urgent retirement warning for anyone on average £35k salary – do you need to act?
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BRITS could end up having £700,000 less in their pension pots than they need for a comfortable retirement, analysis shows.
The shocking figures reveal a worker on an average salary of £35,000 starting out today would need a pension pot of nearly £1.2million in 40 years' time to be able to retire comfortably.
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A worker on an average salary will have £740,000 less than needed in their pension pot
Credit: Alamy
That's according to the Pensions and Lifetime Savings Association (PLSA).
But recent Government figures showed the current minimum level of pension contributions for private sector workers would leave employees with £460,000 at retirement.
That's a whopping £740,000 lower than the amount the PLSA says is needed to retire comfortably.
Workers are automatically enrolled by their employers to make pension contributions, with the minimum level set at 8% of qualifying earnings.
The employer will contribute 3% while the employee covers the remaining 5%.
Last year, the PLSA estimated the average Brit would have a shortfall of £640,000 in their pension pot by retirement.
But there has been an increase in the estimated cost of affording a comfortable retirement, so workers will now need an extra £100,000.
The PLSA says a single person who owns their own home will need an annual post-tax income of £43,900 for a comfortable retirement this year.
That's up from £32,800 in 2020.
A "comfortable" retirement according to the PLSA includes £150 a week to spend on groceries and meals out, £1,500 a year for clothing and footwear, and an annual fortnight-long four-star holiday in the Mediterranean.
What are the different types of pensions?
For a more modest standard of living, the same worker would need a pension pot of £729,000.
Experts now fear the UK is facing a pensions savings crisis as the minimum contribution level isn't enough to fund retirement properly.
If pension contributions were upped to 12%, the average £35,000 earner would have £691,977 in their pension pot by retirement - still a shortfall of hundreds of thousands of pounds.
A £50,000 earner would have a pension pot of £658,367 by retirement if they contributed the minimum 8%.
If they upped it to 12%, they would have £988,524.
How is the Government reforming pensions?
The Government is broadly expected to consider its auto-enrolment rules in the next stage of its Pensions Investment Review.
Chancellor Rachel Reeves has previously considering copying aspects of Australia's pension contribution system, which forces employers to pay more into employees' pots.
But this could prove difficult as businesses have already faced increased costs as they're contributing more National Insurance for employees and the minimum wage has risen too.
The Government is currently planning some of the biggest pension reforms in decades.
It earlier announced plans to move billions of pounds of pension savings into larger "megafunds".
The scheme is aimed at boosting savers' retirement pots as well as investment in the UK.
Data from the final report of the Pensions Investment Review showed the move should boost the average earner's pension pot by £6,000 by the time they retire.
This is based on the average earner who begins saving at 22 and continues to do so until they reach state pension age.
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