Making sure you have enough saved for retirement can be a worry for many people in the UK. In our latest article, George Square Financial Management explores how much is enough when saving for a comfortable retirement and examines the effect that the auto-enrolment increase has had on savers since its introduction in April this year.
Encouragingly, recent research has found that the number of people saving enough for a comfortable retirement has hit its highest ever level*. Results of the research, carried out by Scottish Widows, shows that there has been an increase in Britons saving adequately for the future (deemed by Scottish Widows as a minimum of 12% of an individual’s income). This suggests that the auto-enrolment step-up from 5% to 8% of qualifying earnings, introduced in April 2019, has had an immediate positive impact on saving habits.
However, the research also shows that the proportion of people not saving anything for later life remains static at 17%. Plus, more than a fifth of UK adults (22%) believe they will never be able to afford to retire. This equates to eight million people.
Saving for retirement can be a big worry for many. It can be difficult to know just how much you will need to support yourself later in life.
How much is enough?
If you’re decades away from retirement, you may not think it’s necessary to start saving yet. But it’s important to consider these things as early as possible. As a general rule, you are likely to need in the region of 70% of what you were earning at the peak of your career. This is to maintain a comfortable standard of living in your retirement.
As of 2019/20, the full state pension is £8,767.20 per year. What you need to save per month will depend on when you start saving and how much you’d like to save in total.
Research conducted by social change charity, The Joseph Rowntree Foundation, found that for a basic retirement – which covers essential living costs and includes a week’s holiday in the UK, alcohol, cinema visits, mobile phones and internet access and assumes the person has no mortgage or rental costs – a single person needs around £11,100 per year. That’s an extra £2,332.80 more than the State Pension.
Worryingly, the survey found that those who believe they’ll never be able to retire are more likely to have no pension savings at all, with over half (51%) expecting to rely solely on the State Pension in later life. These people have an average income of £21,500 a year – significantly below the UK average salary of £27,396 – and are much more likely to have faced a financial emergency in the past, from an unexpected bill to a sudden drop in income (86% of this group versus 67% national average).
If you fall into this bracket and are concerned about your future savings, please get in touch for a free initial consultation with one of our highly qualified advisers, who will be happy to help.
On a positive note, the number of under-30s not saving for retirement has fallen dramatically thanks to auto-enrolment. Almost half a million under-30s started saving for the first time in the last two years; four in ten (40%) of 22-29-year-olds now saving adequately. This is a significant uplift from 30% in 2017.
Generally speaking, the survey highlights progress over the last 15 years. The proportion of people who are not in a defined benefit scheme and saving something for retirement has risen from an average of just 43% in 2007 to 55% today. The biggest gains have been among younger people. There has been an 18% rise in 22-29-year-olds saying that they now save for retirement.
Talk to us about the right pension strategy for you
Long-term financial planning can feel overwhelming, but it doesn’t need to be. Though pensions are complex, they’re also a very important way to ensure your long-term financial security. If you require any further guidance to find the right pension or savings strategy for you, please get in touch.
Call 0115 947 5545 for a free initial consultation with a member of the talented and friendly George Square Financial Management team, or send us an enquiry here.
*The research was carried out online for Scottish Widows by YouGov Plc across a total of 5,036 adults aged 18+. Data is weighted to be representative of the GB population. Fieldwork carried out 11-29 April 2019.