In the nationally representative survey of 1,000 working-age UK adults, nearly a quarter (23%) admitted they were unsure of the total pension pot size required to achieve their desired retirement income. The next most common response (15%) was ‘less than £150,000’.
According to the Pensions and Lifetime Savings Association’s (PLSA) Retirement Living Standards, £150,000 could only fund a ‘minimum’ retirement standard for around 10 years, covering all basic needs but allowing little room for extras.
This suggests many savers may be underestimating the true cost of retirement, risking a pension shortfall, as the average retirement lasts approximately 15 years, assuming retirement begins at 66 and life expectancy reaches 81. Fewer than half (49%) of respondents estimated they would need a total pot of around £250,000 or more, which would be necessary to sustain a basic retirement, longer than the 15 year average.
In general, there was a lack of clear consensus among respondents regarding their desired annual income in retirement. The top three responses clustered around an annual income of £15,000 to £30,000, which includes the State Pension if eligible and other benefits and income from savings or investments.
While the upper limit aligns with the average salary in the UK, it falls short of the PLSA’s ‘moderate’ standard, in which retirees would see their annual food and clothing budget increase, in addition to a two week holiday in Europe as well as a long weekend in the UK every year.
Only 15% of respondents indicated a desired income of over £45,000 a year, exceeding the PLSA’s ‘comfortable’ standard, in which retirees would see their annual food and clothing budget increase again, in addition to a two week holiday in the Mediterranean, with a budget to replace their kitchen and bathroom every 10 to 15 years and car every 3 years.
When asked if they felt on track to achieve their desired retirement savings, almost half (43%) of adults noted that they didn’t feel on track with their retirement savings. More respondents felt unsure about their progress (30%) than confident they were on track (27%).
Becky O’Connor, Director of Public Affairs at PensionBee, commented: “It’s hard to plan for retirement without an idea of how much you might need, yet most Brits seem to be unaware of - or worse, dangerously underestimate - the true cost of retirement.
A good pension pot is one that can provide enough money for the duration of retirement. As this exact amount will vary based on individual circumstances, pension calculators can be a helpful tool in setting financial goals and adjusting behaviours to achieve them.
However, one rule is broadly true: the earlier individuals start paying into a pension, the more likely they are to be able to afford their desired lifestyle, as their pension has longer to grow and the amount they’re required to save each month reduces.
Consolidating old pensions into one easy to manage plan can also simplify the retirement planning process, by providing greater visibility, to make it easier to stay on track for later life.”
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