Ignorance about the levels of savings you need for retirement can be blissful…….. until you actually retire.
And, unfortunately, the majority of employees currently have nowhere near enough to ensure that the ‘biggest holiday of them all’ is idyllic and stress free.
According to a Finder survey, the size of the average UK pension pot last year was £35,357, and the average pension pot size in retirement was £69,481. (1)*
As a broad-brush rule of thumb, you would be hard pushed to get a pension income of more than around one twentieth of the size of a pension pot. So, the £69,481 average size in retirement is unlikely to realise more than £3,500 a year.
When you add this onto the £11,502.40 a year received by those who enjoy the current full level of the new State pension, to say that there won’t be too much left over to spend on life’s little luxuries would constitute a gross understatement.
Indeed, the brutal truth is that anyone with a private pension fund worth less than £250,000 will probably experience a degree of hardship in retirement. And such a figure is most unlikely to be achieved by those on average salaries who are simply making the minimum contributions required by auto-enrolment.
Furthermore, lack of awareness of this amongst employees is alarmingly low. We have even come across someone in their 60’s who seemed quite proud of having accumulated a pension pot of £5,000 – not realising it would produce a mere couple of hundred pounds a year!
How much do people need?
Figures calculated at the end of 2023 by the University of Loughborough and the Pensions and Lifetime Savings Association (PLSA) show that a single person needs an overall annual retirement income of £14,400 to enjoy a minimum lifestyle, one of £31,300 to enjoy a moderate lifestyle, and one of £43,100 to enjoy a comfortable lifestyle.(2)*
For a couple, the equivalent amounts are £22,400 for a minimum lifestyle, £43,100 for a moderate one and £59,000 for a comfortable one.(2)*
So, excluding any State Pension benefits, a couple seeking a comfortable retirement should aim for combined private pension savings of over £700,000.
The contribution levels needed to produce such a sum will depend on a range of factors, such as the length of time before retirement, the attitude towards risk of the individuals concerned and the asset classes they invest in.
Education, education, education
But employers who provide employees with access to financial education courses or individual financial advice can ensure they get a good idea of what they need to do.
Chase de Vere is well placed to help here because, unlike many of our competitors in the employee benefits space, we have an independent financial adviser (IFA) arm.
We can offer both regulated one-to-one financial advice sessions and generic financial guidance – either through workshops and seminars or via one-to-one pensions surgeries.
Most employees at least want to learn broadly how pensions work, whether they are contributing enough to achieve the type of retirement they are looking for and, if they aren’t, what corrective action they need to take.
In many cases our generic financial guidance should be able to meet these requirements. Regulated financial advice can, however, provide more tailored and personalised solutions.
Enlightened self-interest
Employers should realise that, even though money might seem tight, laying on such services is likely to constitute a very worthwhile investment for a range of reasons.
Being perceived as a paternalistic employer should boost morale. And the bottom line should also benefit from a reduction in presenteeism, because a wealth of research testifies that financial problems are making employees less productive.
For example, according to the 2024 WTW Global Benefits Attitudes Survey, 59% of UK employees say that money concerns are having a negative impact on their overall wellbeing, resulting in higher levels of anxiety and stress.
Employers also stand to benefit from improved succession planning, because well-informed employees are more likely to be able to retire when they want to.
If you would like to find out more about how Chase de Vere can provide your employees with retirement planning education or advice then please don’t hesitate to contact us.
Sources:
(1) Pension statistics: What is the average pension pot in the UK?
(2) Home – PLSA – Retirement Living Standards
Content correct at the time of writing.