The average person will have to save £260,000 over their lifetime to enjoy a basic income during retirement, whereas those not on the property ladder will need £445,000, according to former pensions minister Steve Webb.
In his assessment, Webb said that savers who were in the government’s auto-enrolment scheme were likely to accumulate half of the target amount.
The report, Will we ever summit the pensions mountain?, published by Royal London where Webb is director of policy, assumed that the average person will need to generate an income of approximately £9,000 a year to top up their state pension at 65. In order to achieve that income, the person will have to save a total of £260,000.
However, those who fail to purchase their own home and face a lifetime of renting will have to save almost £200,000 more. Royal London said it expected that around one in three retirees would end up renting, requiring them to allocate an average of £6,554 a year to pay landlords. This added expense means that they need to save a total of £445,000 to fund their retirement.
Webb said: “We can no longer assume that we will be mortgage-free homeowners in retirement. For those unable to get on the property ladder during their working life, a large private rental bill needs to be factored in to retirement planning.”
Webb also noted that the pension mountain “has grown by about 75% in real terms since 2002/03”, partly because we are living longer and also because current interest rates are much lower, so pension pots deliver less income.
In 2002/03, a pension put of approximately £150,000 would have delivered a private pension of £9,000 a year through retirement, but the figure needed is now £110,000 more.
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