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Telegraph
25-05-2025
- Business
- Telegraph
‘I'm 30 and can't rely on the state pension. How will I ever retire?'
On paper, Tom Atterton is doing all the right things for a comfortable retirement. The 30-year-old has a blossoming career in financial services, owns his own home and has moved his pension into high-growth funds with a long-term horizon. But despite this, Mr Atterton worries he could be working into his 70s. That's partly because he opted out of his workplace pension at the start of his career, preferring to boost his take-home pay instead. 'I was in my early 20s, I wasn't even remotely thinking about retirement. 'And I suppose there was a lot of doom and gloom at that point about how millennials will never retire anyway, there'll be no state pension left. So part of me just thought, 'Oh well, I'll enjoy my life now then'.' With those years behind him, Mr Atterton hopes to retire before he turns 68, but wonders if this is now out of reach. So far, he has just £12,500 in an old pension and £2,500 in his current scheme after three years' worth of contributions. According to the Pensions and Lifetime Savings Association (PLSA), a single person in the UK requires an income of £31,300 for a 'moderate' retirement that includes one holiday a year and several meals out a month. Mr Atterton, who is based in Aberdeen, says: 'It's a worry. Reliance on the full state pension on its own without any workplace pension isn't going to get you anywhere.' Many young people face financial instability later in life due to high living costs and inadequate savings. Defined benefit schemes – which pay a guaranteed income in retirement – have virtually disappeared from the private sector. Meanwhile, the cost of the 'triple lock' – a government pledge to increase the state pension each year by at least 2.5pc – is expected to hit £20bn a year by 2045, raising questions over whether it will still exist by the time millennials come to retire. Mr Atterton earns £38,000, and contributes 7pc into his workplace while his employer pays 5pc. He wonders if he should be making more sacrifices now in order to retire before age 68. 'There will be people who pay nothing into their pension and live a fantastic life now, and then there will be people who pay in everything they can and eat beans every day of the week. I don't want to be in either camp. I want to do a bit of both – not have the most boring, frugal life possible.' Mr Atterton has already taken some steps to grow his pension. He's switched out of the default option for both his workplace pensions and into the more growth-oriented Legal & General Global Equity Index Fund and Royal London Global Equity Select Fund. 'I'd love to do more sustainable investing. But then I look at the sheets compared to what I've got and obviously they're more expensive and they really don't seem to do as well. So if I were to move those into sustainable funds, while it would be good from a societal point of view, would it be to the detriment of my retirement?' He hopes that when he comes to remortgage, this may free up some cash, making it easier to increase his pension contributions. He currently pays about £480 each month on his mortgage, and his 5.3pc fixed-rate deal is due to expire in 2027. 'I know 5.3pc is quite high, but there wasn't much choice. I suppose the positive is that hopefully by 2027 the renewal rate is lower. If my mortgage rate goes down, could I add the difference to my workplace pension? Should I overpay the mortgage or save into my pension – which is the best?' Tyron Potts, associate at consultancy Barnett Waddingham If Mr Atterton keeps contributing 12pc of his salary into a pension – including his employer's share – steadily for the next 38 years, and his salary keeps pace with inflation, his pension pot could grow to around £760,000 by the time he reaches 68. Taking 25pc of that as a tax-free lump sum would leave about £569,000 to generate an annual retirement income of roughly £38,000 in future terms, which would feel equivalent to roughly £11,000 a year in today's money, adjusted for inflation. If he skips the lump sum and leaves the full pot intact, that income could be closer to £15,000 in today's terms. Right now, £11,000 a year in retirement would fall below the minimum standard of living, and even £15,000 would only just nudge above it. To enjoy a more comfortable, moderate lifestyle – around £31,000 a year in today's money – he'd need about £1.6m without a lump sum, or around £2.1m with one. These figures are based on UK-wide estimates and don't account for regional cost of living variations. In Scotland, it may be fair to knock 5pc to 10pc off those targets. To build a pot of that size, he'd need to increase his contributions quite a bit – to around 27pc of his salary (with 22pc from him and 5pc from his employer) to reach £1.6m, or up to 36pc in total (31pc from him and 5pc from his employer) to get to £2.1m. When saving for retirement – especially in your 20s and 30s – every penny counts. Monthly increases invested now will be supercharged by the power of compound interest. In practice, contributing an extra one percentage point of his salary for the rest of his working life (so around £100 per month extra to start with) would result in a fund at 68 of £930,000 – which would provide an annual income in today's terms of £18,000, or £14,000 per annum if he takes the 25pc lump sum at age 68. An extra £200 a month (rising as his salary rises) would result in an estimated fund at age 68 of £1.1m. This could give £21,000 a year today – or £16,000 per annum with a 25pc lump sum. It's a strong goal if affordable, but should be balanced with living well now. Retirement at 68 might not be considered worth it if life until then is a struggle. Deborah Riding, financial adviser at Stan Sherlock Associates, part of The Openwork Partnership Unless funds explicitly state that one of their objectives is not to invest or have any connection to investment in fossil fuels, there is no guarantee they won't be exposed to fossil fuels now or in the future. In the case of Mr Atterton's funds, the fact sheets state no specific restrictions regarding fossil fuels, so exposure is feasible. If this doesn't sit right with Mr Atterton, then he could consider specialised ESG (environmental, social, and governance) funds for his pension. This is no longer such a niche strategy. These funds have set guidelines of what they will exclude from their investment strategies such as tobacco, alcohol, armaments, and fossil fuels. ESG and ethical active funds range from ongoing charges of anywhere from 0.55pc to 1.02pc, and ESG and ethical passive funds range from 0.12pc to 0.36pc. The risk category of the investment will also have an impact on the performance. Overpaying on a mortgage will ultimately reduce the amount of interest he pays. However, he may not be better off if his savings and or investments receive a higher rate of return than the interest he pays on his mortgage. Overpayment will reduce the capital he owes and increase his equity. It could also reduce his loan-to-value, which may make cheaper mortgage deals available to him. Any money put into pensions can't be accessed until pension age, currently 55 moving to age 57 from April 6 2028. This must be money he doesn't need in the short term. Certainly, if his mortgage is paid off before retirement, then it will make it easier for him to retire as he will not need as much income to cover any mortgage payments. If the mortgage is paid off earlier, it may allow him to retire earlier. How quickly he could pay off the mortgage depends on what his current term is now, and the maximum amount his mortgage provider will allow him to overpay without an early repayment charge. Some allow an overpayment of 10pc or 20pc of the original capital, and some allow an overpayment of the capital balance each year to either 10pc or 20pc. Most lenders allow 10pc, but there are those like NatWest that allow 20pc on some of their products. It will also depend on what the future interest rates will be on his mortgage for the remainder of the term after his fixed rate deal ends, and how much he could afford to overpay. Paying into a pension will provide tax relief at his highest marginal rate. So, even as a basic rate taxpayer, he could receive a further 20pc on top of his own funds. Paying into a pension and building up adequate funds could mean he can afford to retire before state pension age.
Metro
17-05-2025
- Business
- Metro
Pensions: How much you should save a month and when to start
Saving into a pension may sound daunting. Last year, consumer group Which? revealed that 51% of people yet to retire weren't sure how much money they'd need for a 'comfortable' retirement. Thankfully, the Pension and Lifetime Savings Association (PLSA) has developed a 'Retirement Living Standards' guide to help you make sense of your financial future. According to PLSA, £59,000 per annum is needed for a married couple to comfortably retire in 2025. This amount would cover basic expenditure as well as some luxuries, such as European holidays, hobbies and eating out. For a 'moderate' lifestyle, it's currently £43,100, while a 'minimum' equates to £22,400. What's not good news is that the figures above are net, not gross, meaning after tax. However, it's not all doom and gloom, as every bit of saving adds up. An individual putting £30 a month into a pension from the age of 25 would end up with a total pot worth £54,000 (assuming investment growth of 5% a year), says Cavan Halley of Parallel Wealth Management. 'Quite simply, the more you can contribute to a pension, the better,' he adds. 'The earlier you start, the more you can benefit from 'compound interest', which essentially translates as growth upon growth.' As an example, with a net growth rate of 6% a year, your pension would double every 12 years. @martinlewismse Near retirement? There's a huge tax trap to avoid when withdrawing from a pension. This is my simple video analogy but always get 1-on-1 free guidance from PensionWise first. This is just a titbit, watch my full Pension special on ITVX ♬ original sound – Martin Lewis There are many companies offering private pensions. You may see them referred to as a Sipp (Self-Invested Private Pension) or a stakeholder pension. First, there are pensions offered by insurers or high street banks such as Aviva, Standard Life, Scottish Widows, and Halifax. Monthly payments can be low – starting from £25 a month – and you have the flexibility to stop and start payments as you wish. With these stakeholder pensions, you select a lifestyle profile, and the provider will invest your money on your behalf. If you want more control over your investments, then a Sipp could be another alternative. Sipps are again offered by many providers. The difference from a stakeholder plan is that you have full choice over how you invest your money. Many people will choose to invest in funds or company shares, although you can choose other alternative investments, such as gold and commercial property. Sipps are offered by online investment platforms such as Hargreaves Lansdown, Fidelity, Vanguard, and AJ Bell. There are also newer digital players such as Nutmeg, Moneyfarm, Moneybox, and Freetrade. You can pay as little as £20 a month into a Sipp, and again, there is flexibility over stopping and starting payments. You could also pay lump sums on an ad hoc basis, which may suit self-employed people who do not receive a regular salary. Make sure the provider is registered with the Financial Conduct Authority. Anyone who has worked in the UK and paid sufficient National Insurance contributions is eligible to receive the State Pension when they reach their retirement age. The amount you get is based on how much National Insurance you have paid over your working life. Some people who are already retired receive the 'old' state pension. Anyone retiring now gets the new state pension, £230.25 per week. This is £11,973 per year, and approximately £997.75 per month. The amount is reviewed every year under current rules known as the 'triple lock'. The Government says this 'guarantees that the State Pension increases annually by the highest of inflation, average earnings growth or 2.5%,' and 'means the basic and new State Pensions are increasing by 4.1%, well above the current level of inflation.' Currently, the State Pension age is 66. However, according to the Government website, this will increase to 67 between 2026 and 2028. It also states an increase to 68 is scheduled between 2044 and 2046. You can check your State Pension age online. Anyone who works for a company, or part-time or full-time for an individual or family, is automatically enrolled into a workplace pension. Current rules mean your employer must put a minimum of 3% of your annual salary into your company pension, while personal contributions are set at a default 5%. This is to meet the total minimum contribution requirement of 8%. However, you can put more than this into your pension, or opt out of paying your own contributions. A word of warning: stopping a pension is highly likely to have a seriously detrimental effect on the amount you have when you retire. The opposite of defined contribution, this type of pension defines the amount you receive after you retire. The benefit amount is set. However, unless you've been working for the same company for a long time, it's highly unlikely you'll have one of these. They're usually referred to as gold-plated pensions because they promise to pay you a proportion of your annual salary after you retire every year for the rest of your life. More Trending Normally, the calculation is around 1/60th of your final salary multiplied by the number of years you worked at the company. Anyone can set up a personal pension and put money into it to benefit from generous tax relief paid by the government. There are different kinds, but the most popular is the Sipp. View More » You decide how much you pay in and how it is invested. Lots of people manage their Sipp themselves, or you can pay for independent financial advice to help you choose a plan that's right for you. MORE: This serum by The INKEY List is clinically-proven to visibly boost the skin's glow MORE: From Samsung to Scrub Daddy – here's our expert's 18 best buys for this weekend MORE: The little trick that will get you into this Summer's hottest music festivals free
Telegraph
15-05-2025
- Business
- Telegraph
A decent retirement is further out of reach than most realise
When it comes to retirement, most people are familiar with the figures from the Pension and Lifetime Savings Association (PLSA). They suggest there are three levels of expenditure to help people understand how much money they'll need in retirement. For a minimum retirement lifestyle, the recommendation is an annual income of £14,400 for a single person, and £22,400 for a couple. For a moderate retirement, a single person needs a £31,300 income – a couple £43,100. To be comfortable, £43,100 is needed for a single person, and £59,000 for a couple. But, and it's a big but, these figures do not take into account the cost of housing, because 'the standards assume people are mortgage- and rent-free, because this is still what most of the population close to retirement will achieve in the next few years'. Maybe before the housing crisis and the spike in rental prices, this was an achievable position, but given the average weekly rent in England (excluding London) jumped 47pc between 2009 and 2024, and by 32pc in London in the past five years alone, I wonder where people are finding the surplus cash to retire? The old line of thinking used to be buy a property, spend 25 years paying it off, then once that debt is clear, you're free to enjoy life (well, at least free from a mortgage). But given the age of first-time buyers has been rising (the average age is now 33 years), and given mortgages are getting longer (data from Quilter shows there has been a significant increase in people taking out mortgages with terms of 35 years or more), what hope is there for any of these people to have paid off their mortgages before retirement? The Government may have increased the age at which you can claim the state pension, but for many, even the thought of retiring at 68 years old (for those born on or after April 5 1977), this idea will be a fantasy if they still have a mortgage. What is also a worry, when it comes to retirement income, is the ever-increasing cost of living in a property. Whether you rent or own, the cost of council tax is now akin to a second mortgage, and with those in leasehold properties, the ever-present danger of sky-high shocking service charge bills is a very real threat to the bank balance. This is all before you've even factored in the runaway price increases for labour, materials and general building maintenance. Where previously, when you got older, you may have considered either moving or improving your property to suit your changing needs, now the costs have become prohibitively expensive, with even the most basic modifications running into the thousands. As a late Gen X-er, I'm keen to know the score, but as I delved closer into the PLSA figures, I found myself feeling increasingly uncomfortable. You see, even the target for a comfortable lifestyle (£59,000 for a couple) only allows £600 a year to maintain the condition of your property, and £300 for a contingency fund. This means that by the time you've had your windows regularly cleaned, the gutters cleared out every year and a spot of occasional gardening help, you won't have much left for the annual boiler service, let alone a roof tile slipping. And what if the boiler needs replacing? Or what about when you want to upgrade the kitchen or bathroom, change the carpets or floor tiles? I won't deny that when I'm 76 years old (if I make it that long), maybe I won't care about the choices I made in my 40s or 50s, but what if I do? I thoroughly agree with having 'rules of thumb' for retirement savings, and maybe I've got myself worked up over how I'll get the money together to fund a conservatory when I'm older so I can while away the hours looking at the garden. But as I sit here now, planning how much extra I need to stuff into my Sipp to cover that eventuality, I wonder how common my worries are? Every day there's some story in the news about somebody who decided a pension 'wasn't worth it', or somebody else who 'couldn't afford it', or another who wasn't going to do anything because of some reason or other. I understand that saving for retirement is tough when you're scrabbling about trying to make ends meet today, but I can't help worrying that not enough people who are young enough to do something about their future aren't doing anything. If retirement for younger generations isn't to become a thing of the past, people need to keep the dream alive by planning – and paying – for tomorrow, today.
The Independent
13-05-2025
- Business
- The Independent
Pension providers ‘to boost saver outcomes and UK growth' under new initiative
Seventeen workplace pension providers are signing up to a voluntary initiative with the aim of boosting savers' investments and UK growth. The Mansion House Accord aims to help defined contribution (DC) pension savers by harnessing higher potential net returns available in private markets, as well as strengthening investment in the UK. Those signing up commit to allocating at least 10% of their DC default funds in private markets by 2030, with at least 5% of the total allocated to the UK, assuming that there is a sufficient supply of suitable assets. The Government said £25 billion could be released directly into the UK economy by 2030, adding that some pension funds have already indicated privately they will go beyond the targets agreed through the accord. The commitment is subject to fiduciary duties as well as the Consumer Duty, which requires financial firms to put consumers at the heart of their products. Workers are often placed into a DC pension pot under automatic enrolment. The size of the pension pot they eventually end up with depends on factors such as how early they start saving, how much they put in and investment performance. The initiative has been jointly led by the Association of British Insurers (ABI), the Pensions and Lifetime Savings Association (PLSA) and the City of London Corporation. Based on providers' current investment holdings, total pension assets in the scope of the agreement amount to £252 billion. The industry expects this amount to increase over the accord's lifetime. Those signing up are: Aegon UK, Aon, Aviva, Legal & General, LifeSight, M&G, Mercer, NatWest Cushon, Nest, now:pensions, Phoenix Group, Royal London, Smart Pension, the People's Pension, SEI, TPT Retirement Solutions and the Universities Superannuation Scheme (USS). The initiative builds on the Mansion House Compact, which was signed in July 2023 and saw 11 UK pension providers committing to the aim of investing 5% of DC defaults in unlisted equities, including venture capital and growth equity, by 2030. For providers who have signed up to both, progress under the compact counts towards meeting the goals of the accord. Chancellor Rachel Reeves said: 'I welcome this bold step by some of our biggest pension funds, which will unlock billions for major infrastructure, clean energy, and exciting start-ups – delivering growth, boosting pension pots, and giving working people greater security in retirement.' Pensions Minister Torsten Bell said: 'Pensions matter hugely, they underpin not just the retirements we all look forward to, but the investment our future prosperity depends on. 'I hugely welcome the pensions industry decision to invest in more productive assets, from growing companies to infrastructure. This supports better outcomes for savers and faster growth for Britain.' Yvonne Braun, director of policy, long-term savings, health and protection at the ABI, said: 'As major investors, the pensions industry already plays a vital role in driving growth in the UK and globally. 'The accord formalises the industry's ambition to invest more in private markets to diversify investments, support innovation and infrastructure, and ensure prosperity. ' Investments under the accord will always be made in savers' best interests. It is now critical that Government supports the industry's ambition, by facilitating a pipeline of suitable investment opportunities, tackling barriers to investments, and delivering wider pension reforms effectively.' Alastair King, Lord Mayor of London, said: 'If we want those firms to scale in the UK, we must ensure they have the capital to do so. This is not just about better pension outcomes, it is about building a more dynamic, competitive investment ecosystem.' Zoe Alexander, director of policy and advocacy at the Pensions and Lifetime Savings Association (PLSA), said: 'UK pension schemes already invest billions in UK growth assets. 'This accord demonstrates the collective ambition of the DC sector to do even more, as well as its confidence that the UK will provide the right opportunities to invest, consistent with schemes' fiduciary duty to members. 'The Government, in its turn, has committed to take action to ensure there is a strong pipeline of investable assets for pension schemes. With everyone playing their part, there is great potential to boost returns for savers while providing vital funding to productive growth areas.' Andy Briggs, Phoenix Group chief executive, said: 'The new commitments have the potential to strengthen the economy by fuelling the growth of British businesses and boosting investment in critical infrastructure.' Ben Pollard, chief executive, NatWest Cushon said: 'The investment case for UK private markets is strong, which is why we are a signatory to the Mansion House Compact and have also signed up to the new Mansion House Accord. 'But there is another positive angle – reconnecting people with the investments their pension is making. These types of investments are real and tangible and show savers how hard their money is working to improve their standard of living in the UK.' Patrick Heath-Lay, chief executive of People's Partnership, provider of People's Pension, said: 'By signing this accord, we are reaffirming how seriously we take our commitment to delivering better outcomes, as well as helping to drive UK economic growth.' Lorna Blyth, managing director – investment proposition at Aegon UK, said: 'The accord is a key element of the Government's growth agenda, alongside other initiatives likely to transform the UK's DC pensions market. 'It comes as the conclusions of the pensions investment review are expected imminently and further fundamental changes are expected in the Pension Schemes Bill later this spring. 'This makes it essential that the Government adopts a pragmatic approach to implementation. Realistic timeframes and a steady supply of high-quality UK investment opportunities across all private asset classes are crucial for ensuring success. 'This includes collaborating with more organisations such as the British Business Bank to provide access to diverse types of private assets – from private equity to infrastructure, which are all vital for optimising member benefits and developing investment portfolios designed for long-term growth.' Amanda Blanc, chief executive officer of Aviva Group, said: 'This is a major opportunity for the pension and investment industry to support UK growth while delivering improved outcomes for pension savers. 'As a significant investor in private markets, Aviva has recently launched a number of funds to give over four million workplace pension customers even greater opportunity to invest in UK assets, including innovative, early-stage businesses, and we want to do much more.'
Western Telegraph
25-04-2025
- Business
- Western Telegraph
Pension changes for workers with smaller private pensions
There are now 13 million of these small pots, holding £1,000 or less, with the number increasing by around one million a year, the Government said. Under reforms introduced as part of the Pension Schemes Bill, each individual saver's small pots will be brought together into one pension scheme. People will still have the right to opt out. The Government said the move will also reduce admin costs for businesses. Pensions minister Torsten Bell said: 'There are now more small pension pots in the UK than pensioners – raising costs and hassle for workers trying to track their savings. It also costs the pensions industry hundreds of millions of pounds every year. 'We will automatically bring together people's small pots into one high performing pension, reducing costs as well as hassle for savers. In time this could boost the pension of an average earner by around £1,000.' Recommended reading: Zoe Alexander, director of policy and advocacy at the Pensions and Lifetime Savings Association (PLSA), said: 'The accumulation of small pots creates unnecessary cost and complexity for savers and schemes alike. The PLSA has worked extensively with industry and the DWP (Department for Work and Pensions) to propose solutions and supports the model being proposed by the Government.' Rocio Concha, Which? director of policy and advocacy, said: 'Which? called for the consolidation of small pots under £1,000 before the election, so we are delighted that the Government is committing to doing this.' Gail Izat, workplace managing director at Standard Life, part of Phoenix Group, said: 'The introduction of consolidators that can administer these pots effectively and invest them dynamically will be a step forward.' The long-anticipated pensions dashboard is designed to consolidate all retirement savings into a single, secure online hub. Keeping track of pensions is notoriously challenging, with the average worker accumulating 11 different pension pots over their lifetime. This has resulted in £26.6 billion in lost pensions across the UK, according to the Pensions Policy Institute and the Association of British Insurers.
