In April 2019 the basic minimum contribution level for auto enrolment pensions will increase from 5% to 8%, with the employer having to contribute at least 3%. Whilst this is seen as a positive sign for most, this will still not be enough to achieve most retirement goals and likely leave people in the position of suffering a shortfall in retirement.
A common belief is the state pension and the auto enrolment accumulated funds will cover retirement income needs. But recent research* found a pension pot of £301,500 is required to maintain the lifestyle of the average person, giving an annual income of £18,000 in retirement with the full state pension is factored in. Research from the same article also found the average pension pot for a now 25-34 year old man, who only contributes at the minimum auto enrolment rates, will have a retirement pot of £142,836 at age 68. This vast difference will have a major impact on the quality of life in retirement or the date they can stop working.
These figures become even more alarming when you consider the average pension fund of a 55 year old is £105,496 following research#, leaving a significant shortfall with little time to address.
Whilst everyone’s retirement requirements will be different due to factors such as age, health and income needs pre and post retirement, it does show there is an issue that needs to be addressed by a large number of people.
There are many ways to address this shortfall, with the obvious being to increase contributions, but there are other options available too. By speaking to an Independent Financial Adviser, they will be able to assess your current pension provision to ensure fit for purpose and that you are getting the best from your money. The end goal will be a tailored financial plan which reflects your personal needs, objectives and aspirations.
By Jack Haskins DipPFS
* Aegon, January 2018 – £300,000 pension pot required to maintain lifestyle
# Telegraph, August 2017 – Average pension pot in UK: What is a good pension pot?