What should clients be saving at different points in retirement?

This article is part of
Guide to boosting retirement income

He adds: “This means that the damning verdict is that people don’t know where to invest, or how much income to take which could cause serious problems with their retirement.”

He stresses that advisers should be providing guidance on drawdowns, as this is a field in which many fall victim to, and it is important they are offered guidance on the best ones to consider. 

Mr Garg identifies four types of individuals that the FCA is consulting to help people make more improved drawdowns: 

  • Consulting with those who have no plans to touch their money within the next five years
  • Consulting with Individuals who plan to use their money to set up a guaranteed income (annuity) within the next five years
  • Those who are taking money as long-term income within five years.
  • Those who are withdrawing all the money with five years.

Ricky Chan, chartered financial planner and director at IFS Wealth and Pensions, says: “Providers can offer up to four investment pathways using prescribed FCA descriptions of objectives.” 

But as the underlying investment asset allocation is decided by the providers, Mr Chan is concerned that different providers may take a different approach meaning that an investment pathway between two providers could invest funds differently.”

Going beyond the minimum 

Many experts stress that saving beyond 10 per cent of a salary throughout the retirement journey is essential to secure a sufficient pension pot. 

Mr Garg says: “It depends on how much the individual has and also what their overall aims are. Many recommend saving around 10 per cent - 15 per cent of your income in your 20s and building on this over time.” 

The 2018 Financial Power of Women report by Fidelity International that reveals that the average pension pot for a man between 25 – 34 would need to be worth around £142,836 by the state pension age of 68.

“To put this into perspective, if you were to leave saving up until your 50s you will need to save on average, £1,445 a month to achieve £23,000 annual income at retirement which means that many will be put under serious pressure if they do not accumulate beforehand,” warns Mr Garg. 

Sir Steve says that the second priority after maximising employer contributions is  “nudge up savings rates when pay increases". 

He adds: “For most people, a combined employee and employer savings rate in the 12-15 per cent range is likely to generate a decent pension pot provided that saving starts reasonably early in the working life and is not interrupted, for example by long periods out of the labour market owing to family commitments or poor health.”