Sippdeal has produced a retirement income versus savings ladder showing how much an individual needs to save to supplement the proposed pension in order to achieve a range of retirement income levels.
The figures show that to generate the same level of income as the new basic state pension individuals would need to save £210,000. But to achieve an income equivalent to the national minimum wage you need to build an additional pension pot of £130,000. To achieve what the Joseph Rowntree Foundation regards as sufficient to enjoy the minimum standard of living in the UK requires an additional pension pot of £270,000.
AJ Bell marketing director Billy Mackay said: “The proposed flat rate pension makes it easier to plan for retirement and for savers to understand what they need to save, but it doesn’t remove the need to save.
“You would need over £200,000 to fund the basic state pension if it didn’t exist, so this is a significant start. But £144 a week is the equivalent of just £3.84 an hour - far below the minimum wage and well below the living wage.
“If they’re to live comfortably in retirement, savers need to have a clear plan around the significant amount of money that they need to invest into pensions, ISAs and other saving vehicles. This is particularly true of those who are self-employed and those who aren’t eligible for a company pension.”
The Government insists on savers having an income of £20,000pa (including the state pension) before they can opt for flexible drawdown. Mackay added: “This suggests that they think you really need £20,000 a year to be confident of not having to rely on benefits. You need to build an additional pot of £380,000 to achieve that. These are big numbers so savers need to avoid the temptation to bury their head in the sand in the hope that the problem will somehow sort itself. The answer is to save what you can, from as early as you can, as effectively as you can.”
Martin Stott, Bulletin PR 07956 917 978 / 0845 075 0086
Kirsty Zollinger, AJ Bell 0161 876 281
Note: The total funding required figures are based on an annuity rate for someone living in the North West and shows the amount needed for a healthy person looking to secure an adequate income in retirement from their 65 birthday.
AJ Bell was formed in 1995 and is one of the largest providers of low cost, online investment platforms and stockbroker services in the UK, with assets under administration exceeding £17.5 billion and more than 70,000 clients. It also provides third party SIPP administration services for Barclays Stockbrokers, Halifax Share Dealing, Skandia and T D Waterhouse.
AJ Bell is owned by its management team and two institutional investors in Invesco Perpetual and Midas Capital Partners
(retail funds).
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