Britain’s over-50s need double the amount of pension they’ve budgeted for in order to generate a decent income in retirement, according to a new survey conducted by Populus on behalf of Saga. Over-50s were asked to estimate what kind of annual income they’d need from their pension in order to cover a range of different retirement lifestyles, and how much they believed would be enough to deliver the income they want.
A pension for the essentials
To cover the essentials (defined as rent/mortgage and food), over-50s said they’d need an average annual income in retirement of £15,200, estimating this could be generated from an average pension pot of £143,830.
However, according to Saga figures, a pension pot of this size would only generate £7,940 in guaranteed annual income for life for a healthy 65-year old. This gives a shortfall of almost 50%, meaning they would need double the pension pot to meet their retirement income target.
There were also stark differences between men and women – men underestimated what they needed in their pension by 41%, women by 66%.
Saga also calculated how long the estimated pension pot would last in drawdown, where a pension is left invested, the average ‘essential income’ is drawn out annually and the fund grows by 5% per annum, net of fees and charges.
In this scenario, a saver would run out of money after 13 years; a man’s would last 15 years, while a woman’s would last just eight.
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A pension for a comfortable life
To have a comfortable lifestyle, defined by respondents as being able to enjoy annual holidays, hobbies and regular opportunities to dine out and socialise, an annual income of £21,630 was thought to be required.
Yet again, however, the actual pension needed to generate that income was double the estimates of Britain’s over-50s, who thought that around £194,000 would be sufficient.
This would only generate a £10,170 annual guaranteed income, leaving a shortfall of around 50%.
For men, the shortfall dropped to 45%; for women, it rose to 63%.
In our drawdown scenario, the fund would be exhausted after 12 years.
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A pension to keep you in luxuries
It was a similar story for amount of income thought to be needed for a ‘luxurious’ lifestyle, which included going away on holiday frequently and travelling in style, having more expensive hobbies and social activities, such as theatre trips, and frequent home refurbishments.
On average, over-50s said they’d need £46,640 to live like this in retirement, and estimated needing £419,520. In fact, that would only generate £22,720 – leaving a 51% shortfall in income.
In this instance, men underestimated their pensions by 46% and women by 62%.
Drawing down an annual income in our scenario would see a saver running out of money after just eight years.