People aged 40-75 who are yet to fully retire expect they will need an income of £30,525 a year when they stop working, which means individuals need to fill a gap of £18,000 every year with pension and other savings.
Analysis of the Department for Work and Pensions survey, called ‘Planning and Preparing for Later Life 2024’, revealed the large gap people need to fill between their income aspirations in retirement and the amount provided by the state pension.
Pre-retirees expect they will need £30,525 to live on in later life. But a single pensioner today on £30,000 per annum will be in the top 15 percent of pensioner income, according to the analysis by consultancy Broadstone.
The state pension provides a maximum income of £11,973 a year, so to attain a yearly income of £30,525, an individual’s pensions and savings must plug a yearly gap of £18,552.
The consultants said that if all of this money was to be provided by purchasing an annuity at the age of 66, an individual’s pension savings would need to be around £330,000.
However, the DWP survey showed that 27 percent of pre-retirees expected that the state pension would deliver more than 70 percent of their retirement income, while 15 percent thought it would provide more than 90 percent.
Further survey data revealed that 26 percent of retirees aged 40-75 said that they felt financially worse off in retirement than they had expected.
David Brooks, head of policy at financial services consultancy Broadstone, said: “This analysis shows a disconnect between people’s expectation of their income needs and the savings required to secure that income.
“In general, people are over-estimating what is an achievable and necessary income in retirement. While we don’t want to deter savers from targeting over £30,000 a year, that objective needs to be based on reality and the ability to balance needs both pre and post-retirement.
“There is possibly also an underestimation of the savings required to reach these income goals with a large gap needed to bridge what the State Pension will provide and what people believe they need in retirement.
“The purpose of the Pensions Commission will be to examine how they can enable people to save adequately so that they can contribute enough into their private pension or other savings vehicles.
“There are likely to be innovative mechanisms to achieve this beyond just ratcheting up mandatory employer and employee contributions such as the suggestion of pension side-car savings.”
