Simon Miller has over 20 years experience in financial journalism and is currently the Senior Financial Editor at nudge.
Every month I take the team at nudge through a concept related to financial planning and wellbeing and this month it was pensions.
Now before you click away, I know that for many people pensions are boring, something for down the road but that is precisely why pensions are actually extremely important and that you should be thinking about them now.
Most people won’t think about retirement, especially as auto-enrollment means that decision is essentially made for you anyway. But what about the sums? How much do you think you need for retirement?
The good people at the Pensions and Lifetime Savings Association (PLSA) have got their calculators out and worked out how much you would need to maintain various lifestyles.
Now the good news is that you only need £11,000 a year for the minimum cover for retirement life – that is covering all your needs with a little bit left over for some fun. However, your weekly shop is £41 a week and you only have £410 for clothing and footwear each year and you’d better know your timetables as you will not have a car to ferry yourself about.
So, what does that translate as in terms of the worker? Well for someone earning £16,822 and in their first job, if they paid 8% of income in, they would be around £7,000 short if they relied on their occupational pension alone. The shortfall is made up by the state which for someone born in 2004, will be when they are 68.
Now, for someone on a low wage, there isn’t much scope to better their pension, but for those earning a bit more, a little bit extra could make a world of difference.
The PLSA describes a moderate income as around £21,000 a year. This gives you £47 for the weekly food shop, a 3-year-old car that you can replace every 10 years and £730 annually for clothes and shoes.
Let’s take a 30 year old with £44,850 as their pay. Even with the state pension, they would still be nearly £4,000 short of what is considered a moderate retirement income.
However, if they inched up their contributions a little to a combined 12% (theirs and their employer’s contribution) then they would hit the target.
So, you see, a little bit more could, ultimately, go a long way. Next month is Pensions Awareness Week, and the team here at nudge are always eager to spread the word that although retirement may be some way off, the actions you take now could have a profound effect on the future you.
Want to educate your team on pensions? Get in touch with the nudge team.