Youth of today need to start saving 30 years before they’re born to get a decent pension
Despite a new IFS report that suggests today’s pensioners are enjoying record high levels of income, for those of us unlucky enough to be young, it seems we may as well throw the towel in, as we can’t save enough for a pension even if we started at birth.
Liberty SIPP has calculated that, not only would age zero be too late to start saving for a pension, in fact, your parents would have had to have started saving 30 years before you were born to allow you to be comfortable in your retirement. Anyone with parents younger than 30 is therefore facing a double-impossibility-pension problem.
The figures are calculated assuming people would need half of the average salary in retirement- which works out at around £13,500. Assuming you would want to take a 25% tax-free lump sum, as is currently available, and that you contribute average contributions, the average person born today would need to have started saving in 1984 in order to achieve a pension pot of £250,000 needed to generate that level of income at current annuity rates. Good stuff.
But it's not all bad news- if the lump sum is not taken, and with the forthcoming changes to pension rules this is likely to become more common, the pension pot only needs to be £188,000 at retirement, so you would only have had to start contributing to your pension in 1991, 23 years before birth.
Despite the scary numbers though, it isn’t actually impossible to save sensibly for a pension, although it might be impossible for babies born today to access the State Pension before age 80. Nevertheless, the State Pension should take some of the strain out of the total income required in retirement, reducing the size of the fund needed on retirement day.
Also, the average contribution into a pension is just £207 a year, so if you can afford more, you’ll build up a pot quicker. Saving £1,305 a year will mean you only need to start saving at 21, when pension provision is clearly top of your priorities.
Finally, more and more people are working past age 65, partly owing to the increase in State Pension age, so if you can afford to keep going a bit longer, your pension will go further when you do retire. You mightn’t be able to afford not to. Also, the new rules mean that buying an annuity will no longer be compulsory*, so you may be able to better use your pension lump sum and generate a more lucrative income.
Or just pop your clogs before you get old.
*assuming the rules haven’t changed again by that time that is.