MANY REGRET NOT HAVING COMMENCED THEIR SAVINGS JOURNEY EARLIER IN THEIR CAREERS

UK retirees are encountering significantly smaller pension pots than they had anticipated, with a considerable number expressing regret over not having commenced their savings journey earlier in their careers.

New research has identified a disturbing trend: the average pension pot amounts to merely

£131,000 [1]. This figure falls short by £119,000 for individuals who had envisioned amassing a nest egg of £250,000. Such a shortfall can drastically alter the retirement lifestyle of many pensioners.

THE IMPACT OF REDUCED PENSION POTS

The research indicates that a pension pot of £250,000 would yield a monthly income of £1,007 or an annual income of £12,091, assuming retirement at the age of 66. However, with a pension pot standing at £131,000, retirees are now facing a monthly income of approximately £527, equating to £6,332 annually.

This represents a monthly deficit of £480 or an annual shortfall of £5,759 [1]. These figures are a far cry from the comfortable retirement many had aspired to achieve. Even with a full State Pension factored in, a £131,000 nest egg is insufficient to support a ‘moderate standard of living’, which, according to the Pensions and Lifetime Savings Association (PLSA), requires an annual income of £31,300.

CHALLENGES AND REGRETS IN RETIREMENT PLANNING

The rising cost of living presents additional challenges for those nearing retirement. Despite Chancellor Jeremy Hunt’s announcement to increase the annual pension contribution allowance to £60,000 for the 2024/25 tax year, few can fully utilize this benefit.

Some individuals are even contemplating returning to work to enhance their pension savings. A significant portion of retirees lament their past financial planning decisions, with the research highlighting at least 50% expressing regret over not having saved more diligently or commenced their savings efforts sooner.

NAVIGATING FINANCIAL PLANNING FOR RETIREMENT

Determining the requisite savings to secure a desired standard of living in retirement is a daunting task, especially in the early stages of one’s career. The challenge is compounded by the need to balance long-term savings goals against immediate financial obligations and unexpected expenses.

The discrepancy between aspirational and actual savings is unsurprising, particularly in a cost of living crisis. This gap ultimately leads to a marked reduction in the quality of life during retirement. Bridging the gap to achieve one’s retirement savings goal can be complex, necessitating a strategic approach to prioritize long-term savings amidst competing financial priorities.

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Source data:

[1] Boxclever conducted research among 6,350 UK adults. Fieldwork was conducted from 26 July to 9 August 2023. Data was weighted post-fieldwork to ensure it remained nationally representative of all demographics.

[2] Calculated using Standard Life Money Helpers’ annuity comparison tool on 29^th January 2024. Assumes income starting at age 66, single income, no protection, payments to increase by RPI and no existing medical conditions.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.