Pension advisors say costs rising.

Pension Advisors
Pension Advisors

Article by Phil

According to Pension Advisors, the amount needed to enjoy a moderate standard of living during retirement has shot up by 30% over the last 12 months.

This is a sharp rise and reflects the impact of inflation over the last two years, since Lockdown. The amount needed by a single person is £31,300, up from £23,000. For a retired couple, they now need £43,100 a year up from £34,000 a year. A leap of £9,000 a year or over 30%.

To enjoy a comfortable standard of living in retirement, a couple now need £59,000 income per year. A single person needs £43,000. Where are pensioners expected to find this extra income? As we’ve seen, many have taken to working longer until retirement.

Single people are hit hardest because they find it more difficult to save into their pensions in the first place. Having all the costs of living to bear from a single income. The Office for National Statistics (ONS) found that single people spent 93% of their disposable income every month, compared to 83% for couples. 60 to 70 years olds are also the fastest growing one person household group.

Renters are also in trouble. Only 18% are on track for a moderate retirement, compared with 55% of those with mortgages, according to pension Advisors at Hargreaves Lansdown.

Younger people seem unconcerned about their pension prospects, however. According to Alex Anderson writing in Money Marketing (19/2/24), 95% of under 25’s think that they will be able to enjoy a comfortable retirement. That’s despite 17% having already opted out of making pension contributions! The under 25’s are also more likely to be self-employed (36% already) or expect to work in a freelance capacity (70% expect this). How they expect to save for a pension is not clear. Many may turn to social media for help rather than pension Advisors. Although with pension scams costing £75 million a year and over 500 under 20’s being victims of pension scams, this might not be the best plan.

It’s a shame because research by Investec Wealth & investment found that by starting contributing £460 a month into a pension via salary sacrifice, in your 20’s, would create a £1 million pension in retirement.

A report into pensions by Lang Cat has called for government action in the form of a new long-term savings commission, to look strategically at what changes are required to improve retirement savings. Regardless of which political party is in power. They suggest that a commission could consider a wide range of issues including:

  • The number of small pension pots and how to deal with them.
  • The administrative burden on employers managing pension schemes and arrangements.
  • The complexity of the pension tax system.
  • The better management of pension schemes going forward.
  • Encouraging more inward investment form UK pension schemes.
  • Better financial education.
  • Joined up thinking between pension savings, housing and later life care.

The list goes on. Currently we seem to have a bits and pieces approach to the issues. They are all under separate consideration without looking at the big picture.

Increasing costs are having an effect on everyone across the board. Even High Net Worth individuals (those with between £500,000 and £1 million invested). Figures from the Saltus Wealth Index found that 70% of High-Net-Worth individuals were providing their adult children with financial support. 80% were also providing support to their adult grandchildren. The average amount of support was £10,000.

It’s not all bad news though. The number of people contribution £60,000 into their pensions, after the rule change last year, have increased by 50%. He previous contribution limit was £40,000 tax free per year.

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