There is a lot of concern from the actuarial class that we are not putting enough money into private pensions to satisfy the needs of the retired, in this section of the FCA 2004 findings on what people think about pensions.
We hear from a large sample of people questioned by FCA who had finished work and were expecting to rely primarily on pensions and secondly on savings and investment. Property related strategies like selling up, downsizing and equity release looks good for 12-13%.
The interesting thing is that the long tail of income sources suggests that people are employing strategies that are not discussed in the pension world. People are more sophisticated than our thinking about them
There appears to be around half of people in retirement very comfortable with decisions they have taken (with just over one fifth feeling uncomfortable and the rest being lukewarm). These aren’t problematic levels but it hardly suggests that we have a retirement system that people are happy with
That retirees are worrying about going to have problems paying for day to day services. This is more worrying than their attitude to the decisions people have taken because it suggests that they worry that some of their strategies are not sustainable
I find it more worrying still that 10% of those in retirement are finding they do not have enough money to pay day to day bills. Reliance on the State Pension leads to one in six people in this position feeling in trouble. One in ten people who have another income that’s bigger than the state pension suggests that financial difficulties persist for those with much larger income. This suggests that the financial crisis is with middle earners.
All the same , the numbers of people complaining that they are out of their comfort does not suggest problems, certainly the crisis my peer group has been warned will be facing us since for forty years.
What these numbers tell me is that people make do with what is coming their way and are ingenious.
But it is also telling us that the FCA are focussing on income in retirement across a wide and varied selection of retirees.
We are currently asking Government to increase contributions to pensions but for those questioned the issues about current income paid today and more pertinently tomorrow.
I hope that we will look more into what retirees can do to increase the amount of income they can generate from pensions, savings and investment.
With the exception of defined benefit pensions and the annuity market, there are no pensions focussing on paying pensions. I hope that we will focus more in the future on the lots of those in the early years of retirement .
We should be thinking more about those making it to retirement.
I have a new addition to the firm, Avatar With an hoours degree in guessing at the Absent Intelligence (AI) University. He/She?it adds some real numbers to the question asked. I will leave you to determine its IQ.
STARTS HERE
To produce a successful pension in retirement with a minimum income of the living wage in the UK, several critical factors need to be considered:
Early planning and saving:
Start saving for retirement as early as possible
Take advantage of compound interest over time
Consistent contributions:
Make regular contributions to pension plans
Increase contributions as income grows
Diversified investment strategy:
Spread investments across various asset classes
Balance risk and potential returns based on age and risk tolerance
Maximize employer contributions:
Take full advantage of workplace pension schemes
Ensure receiving the maximum employer match
State Pension entitlement:
Understand eligibility criteria for the UK State Pension
Ensure sufficient National Insurance contributions
Additional pension schemes:
Consider private pensions or Self-Invested Personal Pensions (SIPPs)
Explore options like stakeholder pensions
Tax-efficient saving:
Utilize tax relief on pension contributions
Consider ISAs for additional tax-free savings
Regular review and rebalancing:
Periodically assess and adjust investment strategy
Rebalance portfolio to maintain desired asset allocation
Inflation consideration:
Account for inflation when calculating future income needs
Choose investments that have the potential to outpace inflation
Debt management:
Aim to enter retirement debt-free
Prioritize paying off high-interest debts
Healthcare planning:
Consider potential healthcare costs in retirement
Explore options for long-term care insurance
Lifestyle planning:
Estimate retirement expenses based on desired lifestyle
Consider downsizing or relocating to reduce costs
Longevity risk:
Plan for a potentially long retirement
Consider annuities or other guaranteed income products
Financial education:
Stay informed about pension regulations and options
Seek professional financial advice when needed
Flexibility:
Be prepared to adjust plans as circumstances change
Consider phased retirement or part-time work options
By addressing these critical factors, individuals can work towards achieving a successful pension in retirement that provides at least the UK living wage as a minimum income.
quantify how much needs to be saved and make the retirement age the variable assume income is the average for each year
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To quantify how much needs to be saved for retirement, we’ll make some assumptions and use the retirement age as a variable. We’ll base our calculations on the average UK income and the current Living Wage. Let’s break this down:
Assumptions:
Current average UK annual salary (as of 2025): £35,000
UK Living Wage (as of 2025): £10.90 per hour or £21,255 annually (based on a 37.5-hour work week)
Inflation rate: 2% per year
Investment return: 5% per year (after inflation)
State Pension: £10,600 per year (as of 2025)
Starting age for savings: 25 years old
Life expectancy: 85 years
Now, let’s calculate the savings needed for different retirement ages:
Retirement at 65:
Years of saving: 40
Years in retirement: 20
Annual amount needed: £21,255 – £10,600 (State Pension) = £10,655
Total needed for 20 years: £213,100 (not accounting for inflation)
Accounting for inflation: approximately £318,000
Monthly savings needed: approximately £250
Retirement at 70:
Years of saving: 45
Years in retirement: 15
Annual amount needed: £10,655
Total needed for 15 years: £159,825 (not accounting for inflation)
Accounting for inflation: approximately £260,000
Monthly savings needed: approximately £150
Retirement at 60:
Years of saving: 35
Years in retirement: 25
Annual amount needed: £10,655
Total needed for 25 years: £266,375 (not accounting for inflation)
Accounting for inflation: approximately £435,000
Monthly savings needed: approximately £400
These calculations are simplified and don’t account for:
Potential increases in the State Pension
Changes in the Living Wage
Variations in investment returns
Personal circumstances that might affect savings or expenses
Key takeaways:
The later the retirement age, the less you need to save monthly due to:
More years to save and grow investments
Fewer years relying on savings in retirement
Potentially higher State Pension payments
Starting to save early makes a significant difference due to compound interest.
These calculations assume a minimum income at the Living Wage. Many people may want to aim for a higher retirement income, which would require larger savings.
The State Pension forms a significant part of the retirement income, highlighting its importance.
Regular reviews and adjustments to the savings plan are crucial as circumstances change over time.
Remember, these are rough estimates. It’s always recommended to consult with a financial advisor for personalized retirement planning that takes into account individual circumstances and goals.
change the inflation rate to 3.7% the 20 years average on RPI terms
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Certainly. I’ll recalculate using an inflation rate of 3.7%, which is the 20-year average based on RPI terms. This change will significantly impact the calculations, as it’s higher than the previously used 2% rate. Let’s revise our assumptions and calculations:
Updated Assumptions:
Current average UK annual salary (as of 2025): £35,000
UK Living Wage (as of 2025): £10.90 per hour or £21,255 annually (based on a 37.5-hour work week)
Inflation rate: 3.7% per year
Investment return: 5% per year (after inflation)
State Pension: £10,600 per year (as of 2025)
Starting age for savings: 25 years old
Life expectancy: 85 years
Revised calculations for different retirement ages:
Retirement at 65:
Years of saving: 40
Years in retirement: 20
Annual amount needed at retirement: £21,255 – £10,600 (State Pension) = £10,655
Total needed for 20 years, accounting for 3.7% inflation: approximately £490,000
Monthly savings needed: approximately £400
Retirement at 70:
Years of saving: 45
Years in retirement: 15
Annual amount needed at retirement: £10,655
Total needed for 15 years, accounting for 3.7% inflation: approximately £410,000
Monthly savings needed: approximately £250
Retirement at 60:
Years of saving: 35
Years in retirement: 25
Annual amount needed at retirement: £10,655
Total needed for 25 years, accounting for 3.7% inflation: approximately £650,000
Monthly savings needed: approximately £650
Key observations with the higher inflation rate:
The total amounts needed in retirement have increased significantly due to the higher inflation rate. This demonstrates the substantial impact of inflation on long-term financial planning.
Monthly savings requirements have increased across all scenarios, highlighting the importance of accounting for realistic inflation rates in retirement planning.
The difference in required savings between retiring at 60 vs. 70 has become even more pronounced, emphasizing the financial benefits of working longer when possible.
The impact of compound interest (both on savings and on the eroding effect of inflation) is more evident with this higher rate.
These calculations assume that the State Pension and Living Wage will keep pace with inflation, which may not always be the case in reality.
The higher inflation rate makes it even more crucial to seek investments that can outpace inflation to preserve purchasing power over time.
Regular review and adjustment of retirement plans become even more important with higher inflation expectations, as the impact of even small changes can be significant over long periods.
As before, these calculations are simplified and don’t account for all variables. The higher inflation rate underscores the importance of seeking professional financial advice for personalized retirement planning, as the stakes are even higher with increased inflation expectations.
Change the inflation rate used to RPI ove r the past 20 years
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I apologize for the confusion in my previous response. You’re right to ask for the correct RPI (Retail Price Index) rate over the past 20 years. Let me recalculate using the actual average RPI inflation rate for the UK over the past 20 years.
The average RPI inflation rate in the UK over the past 20 years (from 2005 to 2024) is approximately 3.1%.
Let’s update our calculations with this more accurate figure:
Updated Assumptions:
Current average UK annual salary (as of 2025): £35,000
UK Living Wage (as of 2025): £10.90 per hour or £21,255 annually (based on a 37.5-hour work week)
Inflation rate: 3.1% per year (based on 20-year RPI average)
Investment return: 5% per year (after inflation)
State Pension: £10,600 per year (as of 2025)
Starting age for savings: 25 years old
Life expectancy: 85 years
Revised calculations for different retirement ages:
Retirement at 65:
Years of saving: 40
Years in retirement: 20
Annual amount needed at retirement: £21,255 – £10,600 (State Pension) = £10,655
Total needed for 20 years, accounting for 3.1% inflation: approximately £450,000
Monthly savings needed: approximately £350
Retirement at 70:
Years of saving: 45
Years in retirement: 15
Annual amount needed at retirement: £10,655
Total needed for 15 years, accounting for 3.1% inflation: approximately £370,000
Monthly savings needed: approximately £220
Retirement at 60:
Years of saving: 35
Years in retirement: 25
Annual amount needed at retirement: £10,655
Total needed for 25 years, accounting for 3.1% inflation: approximately £590,000
Monthly savings needed: approximately £580
Key observations with the 3.1% RPI-based inflation rate:
The total amounts needed in retirement and monthly savings requirements are lower than with the 3.7% rate, but still significantly higher than with a 2% inflation rate.
The impact of inflation remains substantial, underscoring the importance of factoring in realistic long-term inflation rates in retirement planning.
The difference in required savings between retiring at 60 vs. 70 remains significant, highlighting the financial advantages of a later retirement when possible.
The calculations still assume that the State Pension and Living Wage will keep pace with inflation, which may not always be the case.
Even with this slightly lower inflation rate, it’s crucial to seek investments that can outpace inflation to maintain purchasing power over time.
Regular review and adjustment of retirement plans remain important, as even small changes in inflation can have a significant impact over long periods.
These revised calculations provide a more accurate picture based on historical RPI data. However, it’s important to note that past inflation rates don’t guarantee future rates, and individual circumstances can vary widely. Professional financial advice is still recommended for personalized retirement planning.
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Regenerate
So simple really for tose who did not plan theybcan look forward to what they planned, if only they had taken advice or guidance AND ACTED ON IT.
I had a similar thought, but just asked the AI bot the following question:
What percentage of my pension pot should I draw each year after retirement?
Typical Withdrawal Rates After Retirement
The “4% Rule”
• The widely cited rule of thumb is to withdraw 4% of your pension pot in the first year of retirement, then increase that amount each year with inflation.
This approach is designed to make your money last for about 30 years.
Recent Adjustments
• Some recent research suggests a lower rate may be safer due to market conditions, with estimates between 3% and 3.3% for a high likelihood of not running out of funds over a 30-year retirement.
What People Actually Do
• Many retirees, especially those with smaller pension pots (under £250,000), withdraw much more-up to 8% per year-but this is generally considered unsustainable and risks depleting the pot early.
Key Considerations
• Your ideal withdrawal rate depends on your age, health, other income sources (like the State Pension), spending needs, and investment returns.
• Withdrawing more than 4% annually increases the risk of running out of money, especially if markets perform poorly or you live longer than average.
• Flexibility helps: adjusting withdrawals based on investment performance or personal circumstances can make your money last longer, but income will be less predictable.
And a “predictable” final caveat…
…”Professional advice is recommended to tailor withdrawals to your situation and avoid running out of money.”
Remember this is a top up to the state scheme, to get to the living wage NOT an additional £21,255
It is interesting just how many people don’t know of all the state benefits they could claim in retirement. That is especially true of those who have never claimed benefits before. You have previously mentioned the great under claiming of Pension Credit, but there are others that a much wider selection of new retirees could claim either immediately or later on.
Which? aka the Consumers’ Association offers this advice:
Pensioners, already dealing with the removal of the winter fuel payment, are now seeing their average income levels fall — and millions risk an even tougher retirement.
According to the Department for Work and Pensions (DWP), the average weekly income for UK pensioners dropped to £407 in the 2023-24 financial year, down from £410 the previous year.
Meanwhile, new research from pension provider Scottish Widows found that 39% of non-retirees — around 15.3 million people — are at risk of not even covering the basics in retirement. The cost of living crisis has pushed this figure up from 35% last year.
Here, Which? looks at ways that you can ensure that your retirement is as comfortable as possible, whether you’re still an employee or have already stopped working.
Are pension incomes stalling?
The popular notion is that pensioners have never had it so good. However, recent figures from the DWP on pensioners’ incomes suggest that might not be the case.
Average income for pensioner couples was £595 in 2024 – more than twice that of single pensioners, who received just £282. Younger pensioners also fared better, with average incomes of £455 per week, compared with £372 for those aged over 75.
Overall, average pensioner incomes reached £407 per week in 2023-24 — a huge uplift from the £206 recorded in 1995. But growth has slowed. In 2010, the average income stood at £392 and has since levelled off.
There are several reasons for this. Pensioner take-up of income-related benefits has declined — just 20% receive them, compared to 37% in 1995.
The decline of generous defined benefit schemes will also have contributed to the plateauing of income levels over the past decade or so.
Getting rid of the state pension triple lock, suggested as a way to cut government expenditure, would lead to a further slowdown in incomes, as many people are still reliant on the state pension.
3 ways retirees can make their money go further
There are some actions you can take, both large and small, to help your money go further in retirement years.
1. Top up your state pension
You can still top up your state pension even if you’ve started receiving it or have passed state pension age but haven’t applied for it yet.
This is as long as you come under the ‘new’ state pension system and reach pension age on or after 6 April 2016.
If you’re on track to get less than the full level of the new state pension (£230.25 a week), you can give your income a boost.
You do this by making voluntary National Insurance (NI) contributions to fill any gaps in your NI record. This will add more qualifying years to your record and potentially increase your state pension.
You can only fill gaps in your NI record from the past six years. The deadline for topping up older years has now passed.
For 2024-25 and 2023-24, the rate is £17.45 for a week of missing contributions. It would cost you £907.40 to cover the full year. The rate for 2025-26 is £17.75 a week.
For years between 2019-20 and 2022-23 inclusive, the rate is £15.85 a week (£824.20 a year).
2. Claim over-60s perks and benefits
There are various perks and discounts you can claim once you’re in your 60s to help with your budgeting.
In most parts of England, you qualify for a free bus pass – usually covering travel between 9.30am and 11pm – once you reach state pension age (currently 66).
Those living in Scotland, Wales, Northern Ireland, Merseyside and London can claim the travel concession at 60, with free rail, tube and tram travel sometimes included.
The Senior Railcard is available to travellers aged 60 or over. It costs £35 a year (or £80 for three years) and gives you a third off standard and first class anytime, off-peak and advance fares.
Once you reach 60, you can get free prescriptions and NHS sight tests in England. Prescriptions are free for everyone elsewhere in the UK (as are eye tests in Scotland).
You’ll also be entitled to free NHS dental treatment if you’re receiving pension guarantee credit.
3. Don’t forget about pension credit
Pension credit gives you extra money to help with your living costs if you’re over the state pension age and on a low income
Depending on your circumstances, there are some additional allowances and benefits that you may get via pension credit, including the winter fuel payment.
There are two parts to pension credit – guarantee credit and savings credit – and you may get one or both.
In 2025-26, if you’re over the state pension age and single, and your income is less than £227.10 a week, guarantee credit will top you up to that amount. For a couple, the combined income figure is £346.60.
Only people who reached state pension age before 6 April 2016 qualify to claim savings credit.
If you think you may be eligible, it’s worth using the government’s pension credit calculator.
You’ll need details of your earnings, benefits and pensions, and your savings and investments. You’ll also need the same details for your partner if you live with them.
3 ways pre-retirees can boost their future income
Still working? A few smart moves now could lead to a more comfortable retirement.
1. Keep your retirement savings on track
To help you save enough for retirement, you’ll need to have at least a rough idea of how much you need.
To make this easier, the Pension and Lifetime Savings Association (PLSA) has developed three ‘retirement living standards’. These reflect the amounts you’d need for what it describes as a minimum, moderate or comfortable standard of living in retirement.
A moderate retirement equates to expenditure of £31,300 per year for a single person and £43,100 for a couple.
For a comfortable standard of living in retirement, the PLSA says single-person households need £43,100 a year, while couples need £59,000.
2. Increase your pension contributions
Putting more money into your pension, or opting for an employer that offers more generous contributions, can go a long way to help you achieve the PLSA targets.
Your employer must contribute at least 3% of your salary, and you must contribute 5%, making a total of 8%.
If your employer pays in more than the required minimum of 3% but less than the total minimum contribution of 8%, you only need to contribute enough to make up the difference.
The sensible move would be to maintain your contribution level of at least 5% to give a substantial boost to your retirement fund. A pay rise is an ideal opportunity to increase your pension contributions above the required 5%.
Some employers will match any extra contributions you make to your pension, offering an opportunity to grow your savings more quickly.
3. Consolidate your pots
Since the introduction of auto-enrolment in 2012, employees are automatically signed up to their workplace pension scheme, meaning many of us will accumulate multiple pots as we switch jobs during our careers.
You can make it easier to keep track of your retirement savings by bringing together some or all of your pots in the same place.
It can also save you money if you’re transferring to a scheme with lower fees.
If you’re an experienced investor, opting for a self-invested personal pension (SIPP) will give you more control over your savings and access to a wider choice of investments.
The much-delayed pension dashboards are due to arrive at the end of 2026. They will enable you to see all your pension savings in one place, although you might want to take the initiative before then to combine your funds in one place.