Savers will need to accumulate a pension pot of £285,000 to secure a ‘modest’ standard of living in retirement.
New analysis by Standard Life, using the Pensions and Lifetime Savings Association’s retirement living standards, shows that people need an income of around £23,300 a year for for a modest lifestyle, that includes funds to run a car and afford one overseas holiday per year, alongside basic spending for food, fuel and leisure activities.
Standard Life estimates people will need a fund of £285,000 to generate this additional income of £12,7000 a year, on top of the state pension.
However it points out that even those looking to secure a minimum standard of living in retirement – which includes one UK holiday a year, although no car – would need a pension pot of £50,000 to generate the £2,200 income a year needed to top up the state pension and ensure they can afford the basics.
Those looking for a ‘comfortable’ lifestyle, which factors in additional spending for leisure and holidays, would need a pension fund of £530,000 according to Standard Life. Along with the State Pension this would generate the required £37,300 a year.
This analysis has been delivered using Standard Life’s MoneyHelper annuity tool – which has taken into account the recent 20 per cent increase in annuity rates.
Standard Life managing director for retail direct Dean Butler says: “Having a savings target in mind gives you something tangible to work towards. The Retirement Living Standards tool from the PLSA clearly shows what life in retirement looks like at different levels, factoring in the expenses people tend — as well as the more obvious costs.
“It’s important to note these figures are just a guide, and individual circumstances will vary.The figures don’t account for housing costs. which a significant minority of retirees currently have, and which more are predicted to have in the future as longer-term mortgages surge in popularity.
“However, knowing that £285,000 is the amount needed for a moderate retirement is a good place to start, and highlights the importance of consistent saving. Starting to save for retirement as early as possible in your career really helps, giving you more time to build up a decent pot, and a greater chance of taking advantage of possible compound investment growth.”
He adds: “On a more positive note the current economic environment has pushed annuity rates up, with Standard Life estimating rates have improved by 20 per cent over the last year, meaning pensioners can generate larger incomes from their savings. The value and certainty offered by a guaranteed income seems to be becoming harder to ignore.”
