Pension system is a ‘slow-motion car crash’ for the middle-aged who are at risk of not saving enough

In response to reader question on how much you need to save for retirement, Steve Webb offered the following advice:

Former pensions minister and This is Money columnist, Steve Webb

The first thing to work out the income you will need to deliver the kind of retirement you are targeting.

A useful benchmark is provided by the Pensions and Lifetime Savings Association who have done a lot of work on retirement living standards. 

The PLSA have looked at the amount of money you would need in retirement for a pretty basic standard of living, covering your key outgoings and with a little bit to spare.

They call this a ‘minimum’ standard of living.

Second, they have looked at what you would need for a higher standard of living, with greater financial security but still not living in the lap of luxury. They call this a ‘moderate’ standard of living.

And third they have estimated what you would need to fund a retirement with plenty of financial freedom and scope for luxuries. They call this a ‘comfortable’ retirement.

For each of these types of retirement, PLSA have then worked out how much annual income you would need, providing separate figures for singles and couples. These are shown in the table below and for a moderate retirement, the figures are £20,800 for an individual and £30,600 for a couple.

Source:  Pensions and Lifetime Savings Association

I am going to assume you are targeting what they call a ‘moderate’ standard of living in retirement – above the breadline but not too luxurious.

I will also assume that you are a single person and therefore you are targeting an annual income of £20,800.

To start with the good news, your state pension should get you nearly half the way there.

From April 2022, the full new state pension is worth an annual £9,628, and most people with a full working life should get that amount. You can check your state pension forecast here.

Deducting that from the target of £20,800 leaves you £11,172 to fund from your private pension pot.

> Read Steve Webb’s full reply:  What do I need to save for a decent retirement? I’m 50 and have £60,000 in my pension so far

 

 

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