The numbers are out from Pensions UK and they make more uncomfortable reading for us.
This suggests that we should be ploughing more of our take home into long term savings. This blog has argued that the money we put aside could work harder for us than it does right now.
These numbers will blow the minds of most of us. How did it come down to it that you need to be a millionaire to be comfortable? After you count in the value of your house and savings these numbers are telling us that an estate sufficient to be give a comfortable lifestyle is likely to be valued by HMRC as liable to IHT!
The liabilities created by inflation in the costs of visiting the supermarket or maintaining the home are a large part of the “pot”. The reality of most financial projections given to people from their DC “pension” providers is of a level annuity. This is known as a Statutory Money Pension Illustration and it is, we reckon, overestimating the amount of income you’ll get. In Denmark they’ve taken to comparing your position in five, ten and fifteen years to show the problems of relying on income from your pot to pay a level pension. You may hit comfort in the early years but feel the pinch as years go by.
We should be saving not for a target pot but for a target wage and a wage in retirement that keeps up with inflation. We are not on our own when we do this, we are with millions who are doing the same thing and we should learn to do this together in collective funds that pay pensions not pots!
I hope that in five, ten and fifteen years, Pensions UK will return to projecting our retirement pensions as deferred pay – a wage in retirement if you will – and not a pot of money. Switching to saving for an inflation linked pension will pay better pensions, up to 60% better pensions if the DWP are to be believed.
But even if we find a better way to pay ourselves in retirement , there is no simple answer to the shortfall between what we want to be paid in retirement and what we can expect , if saving at our current rates.
I hope that the Pensions Commission will make workable recommendations that will mean we can look ahead of certainty of what they’re going to get as a pension for the rest of our life. I hope that we will understand the shortfall from the deferred pay we would like and a clear answer to the question “what do I need to do to retire on what I need?”
If we can work it out for ourselves , we can work out whether we’ll be dependent on our family or whether the family can depend on us.
There are many other answers to the shortfall question but they must all address the central issue which is that only one in ten of us can look forward to retirement without financial stress.