Retiring in comfort

Victoria Ticha

features writer for Financial Adviser and FTAdviser

The average private pension wealth of Generation X is £70,400, but is this enough to ensure a comfortable retirement, asks Victoria Ticha?

Generation X needs to have saved £187,400 on average in order to retire comfortably, according to recent research from Salisbury House Wealth, published on February 26.

The study – based on the assumption that an annual income of £19,000 is needed for a ‘basic retirement’ and assuming a 2.5 per cent inflation rate – said individuals aged 43 in 2019 would need to have already saved £146,950, and individuals aged 54 need to have saved £227,780.

However, data from the Office for National Statistics’ ‘Wealth and Assets Survey’ – conducted in November 2018 – shows individuals in Generation X have only saved 37 per cent of what they need to have saved so far, with the average private pension wealth roughly £70,400.

But is this enough to ensure a comfortable retirement?

Difficult to quantify

Sarah Lord, partner and head of financial planning at Mazars, says it is hard to quantify how much someone should have saved by now for a comfortable retirement, as everyone has different financial goals and a desired standard of living.

She explains: “We see Generation X clients with a really broad spectrum of life savings, from those that already have a lifetime allowance consideration, through to those with less than £100,000 in their pension and savings.

“The ability to save can be harder for Generation X due to all the other financial pressures experienced in the short term, such as property purchase, mortgage repayments, childcare costs.”

There is no one-size-fits-all and while one person aspires to a £1m pension pot, others can comfortably get by on much less.
—Helen Morrissey, Royal London

But ultimately, she says a comfortable retirement is having sufficient financial resources to live the life they desire in retirement, and to be able to maintain this standard of living.

“So it is about getting the right balance of meeting needs in the short term and planning for the longer term,” she adds.
Indeed, Helen Morrissey, pension specialist at Royal London, says the industry produces many different figures as a target for a comfortable retirement.

She continues: “However, there is no one-size-fits-all and while one person aspires to a £1m pension pot, others can comfortably get by on much less.

“As people in retirement often have lower outgoings in retirement – they have often paid off their mortgage and don’t need to commute every day – they will need less and the state pension will form part of this.”

She suggests starting pension saving early and making contributions of roughly 15 per cent wherever possible – including the employer contribution – is one way to ensure a sufficient pot.

While Catherine Stewart, head of individual pension propositions at Scottish Widows, notes the pension industry and government have been using ‘rules of thumb’.

She says: “For example, a middle-income earner, assuming they own their own home, should probably aim to have around two-thirds of their salary as their income in retirement.”

Impact of gender divide

On average, women who have entered pension income drawdown since the pension freedoms have retirement pots worth £118,000 – 34 per cent less than the average man’s £179,000 pot, according to research by Censuswide, published by AJ Bell on March 7.

The study – a survey of 554 respondents over 55 that have entered drawdown since April 2015, conducted between February 8 to 14 this year – found the differing income levels naturally translate into a divide over retirement expectations.

Some 62 per cent of female respondents were concerned about running out of money in retirement compared to 53 per cent of men.

Indeed, Ms Morrissey points out that research by Mercer suggests the gender pension gap is around 40 per cent, roughly double the gender pay gap.

She says: “There are many reasons for this – women tend to be paid less than men, they are also likely to work part-time and take career breaks to look after children.”

Couples should have open and honest conversations about their shared aims for retirement and how well they’re saving together.
—Catherine Stewart, Scottish Widows

Ms Stewart notes the 14th annual ‘Women and Retirement Report’ published by Scottish Widows in 2018 showed 54 per cent of women were saving adequately for retirement, compared to 56 per cent of men.

She says: “For younger women, the fear of financial hardship is clearly discouraging many from saving into pensions, leaving those most financially vulnerable at an even greater disadvantage.”

Playing catch-up

Ms Lord says the key is making sure women are saving and reviewing their finances on a regular basis.

She says: “It is essential to include saving as part of the monthly budget and make sure funds are set aside for the future.”

But to really close the gap, women must prioritise their pensions early in their career, and get maximum benefit from employer contributions, tax relief and investment performance, suggests Ms Morrissey.

She adds: “They should also make sure they plug any gaps in state provision by ensuring they continue to receive National Insurance credits when they are at home caring for children.”

Ms Stewart also suggests “tracking down any older pensions they may have and consolidating them may be an option,” as well as “paying a little extra before, during or after taking extended leave, can go some way to mitigating the impact to retirement savings”.

She adds: “Couples should have open and honest conversations about their shared aims for retirement and how well they’re saving together.

“In addition, seeking legal advice is crucial to understand the legalities of what happens to pension pots during divorce proceedings and what pension offsetting is.”

Victoria Ticha is a features writer for Financial Adviser and FTAdviser

Published 01/04/2019

Share article