A baby born in 2014 would need to have started saving in 1984 if they want to retire at 65 with a pension income of £13,500, based on today’s average pension contributions, according to Liberty Sipp.
To secure an annual income of £13,500 at age 65, after taking the 25 per cent tax-free lump sum, currently requires a pension pot of £250,000.
According to Liberty, the ‘average rate’ is investing £208 per year from age 21, assuming a growth rate of 5 per cent, no inflation and an annual management charge of 1 per cent, which produces a pension pot of £30,000 pot by age 65.
A person saving at this average rate would need to save for 95 years to reach the £250,000 mark.
A person making only the contributions required to generate the average UK pension pot size of £30,000 by age 65 would need to save for 95 years to reach the £250,000 mark, Liberty Sipp calculated.
To achieve an annual pension income of £13,500 without taking the tax-free lump sum requires a pot of £188,000.
The average person born in 2014 making average contributions would therefore have need to have started saving in 1991 in order to build up a pot this size, Liberty Sipp said.
This emphasised the reality that most people are saving nowhere near enough.
For a 21-year old to build up a £250,000 pension pot and receive half the average salary when they turn 65, after the tax-free lump sum, they would need to start contributing £1,734 per year. This works out at 8.3 times more than the current average rate of saving.
To achieve the same retirement income without the tax-free lump sum, a pension pot of £188,000, they would need to contribute £1,305 per year, or 6.3 times more than they are currently saving.
John Fox, managing director of Liberty Sipp, said: “I’m sure the pensions industry is starting to sound like a broken record, but people are saving way too little and are starting way too late.
“Either we do something about this or we invent a time capsule so that a baby born in 2014 can start saving into a pension in the mid-1980s, in order to get a half decent retirement in 65 years’ time.”
