Despite the success of auto-enrolment nearly a third of the UK workforce is not saving for a pension at all and millions of people aren’t saving enough for retirement prompting calls for pension contributions to be increased.
One thinktank – New Financial – released a report saying stating the minimum workplace pension contribution should be at least 12 percent of one’s salary to help people achieve a comfortable retirement.
Calculations from interactive investor found that retirees would need around £69,000 more in their pensions during their retirement to live to a good standard.
Based on an analysis of 2022’s PLSA retirement living standards, the cost of a “comfortable retirement” for pensioners has increased by £4,200 since last year.
Older Britons required a total income of £47,700 in July 2023 for a “comfortable” post-work life compared to £43,500 in April 2022.
For context, that is the equivalent of £37,100 private pension income, assuming they get a full state pension of £10,600.
In order to get this extra £4,200 a year, pensioners will need a private pension pot worth £290,800 which is £42,800 more than what was needed the year before.
On the BBC Money Box podcast, William Wight managing director and author of the report explained that it will be “extremely common” for many people that they won’t have enough for retirement.
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He said: “The average pension pot for those between 55 – 65 is £35,000. It translates to annual retirement income of less than £1,800 on top of the state pension”.
Mr Wright explained that if pension contributions were 12 percent minimum, and then eventually grew to 15 or 16 percent, this would be the “biggest leaver to improve income”. More power should be put in to increase the workplace pension.
Eight percent is better than no pension, however he warned it is lower in comparable markets and lower than other pension experts believe.
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He said: “In most systems around the world, and the UK historically employers paid at least as much and often twice as much as into pensions than individuals do.
“We will all benefit in the long run from increased pension contributions.”
Episodes of Money Box are available on BBC iPlayer.
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