Are You on Track to Retain Your Lifestyle in Retirement:                      

Life can be monotonous. At some point in our lives, we will probably all have been familiar with feeling like we work day in, day out. The weeks quickly turn into months, and the months into years without us even really noticing. All the while, we go through life with a vague notion that our pensions will be enough to support us when we come to retire. So, a lot of people assume they don’t have to give any forethought to their retirement lifestyle. But, very few people will have done any precise calculations of late to check whether a comfortable retirement is within their grasp. Many people believe this is a given. They pay their pension contributions, and so that should be enough to cover it, right? Sadly, this isn’t usually the case. That’s why it’s so important to take time to make sure before it’s too late. 

The Pitfall

It’s all too easy for those, particularly with Defined Contribution (DC) schemes, to believe that their minimum automatic enrolment contributions and the state pension (currently £9,110) will cater in full for their lifestyle in retirement. Yet Aegon, the pension and investment provider, is warning that retirement incomes could fall well short of expectations if people rely on this being the case.   Aegon’s research indicates that most DC savers will need to increase their contributions if they wish their retirement lifestyle to match their current one. As such, it’s worth taking stock as soon as possible of how much more money you might need to save.

What the research shows

The figures used as the basis for Aegon’s research came from the government’s 2017 auto-enrolment review. They highlighted broad target replacement rates (the percentage of an employee’s pre-retirement monthly income received each month after retiring). The findings determined that earning an average salary of £27,000 would warrant a 67 per cent replacement rate to maintain their lifestyle from pension savings of £303,900. They would therefore need an income of around £18,000 per annum for their retirement lifestyle to mirror their working one. In addition to the state pension (currently £175.20 a week), a 22-year old earning £27,000 would need to contribute 4 per cent more on top of the current 8 per cent minimum combined contribution to reach their required monthly income. If they don’t, they could well be looking at a shortfall of a staggering £106,500. The extra needed contribution would increase with age to:  

  • 13 per cent more for a 35-year old 
  • 29 per cent more for a 45-year old 

These figures are based entirely on individuals just being in auto-enrolment schemes and do not take into account any existing pension pots they may have.  While the additional percentages may sound alarming, do remember that some employers will also match your contributions. So the amount you need to increase your contributions by could well be more palatable than you first think. Furthermore, tax relief from your employee contributions means it could cost as little as 1.6 per cent from your take-home pay to get up to the 4 per cent mark specified.

In summary

The key message is simple. Take stock early. Take stock now. When it comes to your pension, the sooner you start thinking about it and putting a plan in place, the better placed you will be to ensure your retirement lifestyle is everything you hope. Think realistically about what you will need and, if a shortfall looks likely, think about paying more than the automatic minimum as soon as possible. The longer you wait, the harder it will be to catch up. 


As always, if you would like to speak to an adviser, please do call us on 01243 767 469. Alternatively, you can email us from our contact page, and an adviser will be in touch.

Written by Chris Page

Chris is an experienced financial service professional who joined the business in 2013, as a result of his hard work and dedication he was made a director of the firm late 2014.