Modelling from Broadstone shows that even if the government came good on its ‘triple lock’ pledge, pension savers still need to build up a pot of around £550,000* to guarantee a comfortable retirement.
The CPI print for September means that the State Pension should be uprated by 10.1% in the 2023/24 tax year if the government does not break its commitment to the triple lock. It would take the State Pension to £10,600 compared to a yearly total of £9,628 this year.
However, despite this potential £972 a year increase, single pensioners would still need a total annual income of £33,600 a year (if they live outside of London) for a comfortable retirement, according to the Pensions Lifetime Savings Association (PLSA).
This would include a £59 weekly food shop, 3 weeks in Europe a year, £1,200 for clothing and footwear and a two-year-old car replaced every five years.
The modelling from Broadstone shows that in order to fill the gap between the income needed for a ‘comfortable’ retirement and what would be provided by an inflation-uprated State Pension pensioners would need total pension savings of £550,000.
The ONS shows that the median pension not in payment for unretired 55-64 year-olds (excluding those with no savings) is £105,800, meaning a sea-change is needed in pension saving to avoid a retirement income shock.
Rachel Meadows, Head of Pensions and Savings at Broadstone: It is worrying news that the government no longer appears committed to defending the State Pension triple lock given the current cost-of-living crisis. Many pensioners struggle for income every year and a failure to uprate in line with inflation would be another hammer blow ahead of a tough winter.
“However, it is important that people at all stages of their pension-saving journey are aware of just how meagre the UK State Pension income is in terms of meeting regular expenditure.
“Even if the full State Pension was uprated in line with double-digit inflation, there would still be a £10,200 annual gap to meet just the moderate income standard while those aiming for a comfortable retirement would need around £550,000 worth of pension savings.
“It should be a wake-up call for savers who are contributing minimum levels to their pension that they should be increasing their contributions if they can. This is especially true if their employer matches their increases, while they will also gain from tax relief.
“The scale of this challenge highlights the importance of engaging with pension saving at a young age – by the time this feels relevant to many they are close to retirement, and the contributions needed to play catch-up at that stage of life can be unrealistically large. Understanding the challenge early means that small changes to savings levels can make a big difference.
“Businesses must also consider proactively engaging their workforce. Productivity is closely linked with mental and financial wellbeing, so helping their employees become more confident of a comfortable retirement is a win-win.”
* Based on current best buy annuity rates for a 65-year-old (single life, escalating with RPI, 5 year guarantee period)
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