UK workers need to save £799 a month into their pension to be able to achieve a moderate retirement, research has shown.
The calculations were produced by the Institute and Faculty of Actuaries – using the retirement living standards published earlier this month by the Pensions and Lifetime Savings Association - which concluded savers will need to save well above the automatic enrolment minimum contribution rate to achieve a moderate or comfortable income in retirement.
According to the IFoA, an individual aiming for a minimum income retirement target – a pension of £10,200 per year - should be saving £86 per month, on average, from the start of their working life.
This should be covered by the contribution they and their employer have to make under auto-enrolment.
However, to work towards a moderate level of income of £20,200 a year, the amount of savings required rises, with individuals needing to save £799 a month on average over their entire working life.
This represents about a quarter (26 per cent) of earnings for someone on an average full time salary, according to the IFoA.
Mark Williams, chairman of the IFoA’s pensions board, noted “these savings goals are high, and to many, they will appear daunting.
“But as actuaries, it is our role to ‘do the maths’ and we believe that it is in the public interest to demonstrate the potential scale of under-saving, and the impact it could have on people’s retirement prospects."
After two successive increases in 2018 and 2019, auto-enrolment minimum contributions are now 5 per cent for employees and 3 per cent for employers, equating to a combined 8 per cent.
Mr Williams added: “We urge the government to assess whether the current balance between the levels of employee and employer contribution is appropriate.
“Individuals alone should not be burdened with the responsibility of closing what could become a significant savings gap unless there is further policy reform.”
Paul Gibson, financial planner at Granite Financial Planning, said: "A three or four decade retirement is now quite common and the cost to fund this adequately is indeed relatively expensive. Clearly the earlier someone starts saving the better and trying to maximise any employer contributions available will help.
"There is no silver bullet, you need to save some income now or potentially give up a lot in retirement.”
In December 2018 the department for Work and Pensions published its long awaited auto-enrolment review, which announced a series of measures to capture more people into the AE net.
These included lowering the age of workers auto-enrolled into workplace pension schemes from 22 to 18 years and calculating contributions from the first pound earned, instead of the current £10,000 lower earnings threshold.
However, these changes will only be introduced in the mid-2020s.
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