Pensions: how much money do you need for retirement?
One in three retirees expected to still be renting so will need a bigger pension pot
British savers withdrew at least £2.3bn from their pensions in the first three months of the current financial year, a 50% increase from the same period three years ago.
The new figures, released by HM Revenue & Customs, “will raise fears that people could be left without enough cash for retirement”, says This is Money.
Pension reforms, introduced in April 2015, essentially allow over-55s to take out as much money as they want from their retirement savings.
The HMRC figures suggest that the average withdrawal per person was £9,000 per quarter, but the total withdrawn is likely to be even more as the figures do not include the 25% lump sum that can be taken tax-free.
Henry Tapper, a pensions expert at First Actuarial, told The Times: “If people are taking £36,000 per year out of their pensions, they may be being a little bit aggressive in their drawdowns.”
Tom Selby, a senior analyst at the wealth manager AJ Bell, told the newspaper that the money involved was “truly staggering” and that savers were treating their pensions more like bank accounts.
So how much money should workers be putting aside?
According to pensions investment company Royal London, where former minister Steve Webb is director of policy, the average person will need to save £260,000 over their lifetime to generate an income of around £9,000 a year to top up their state pension, assuming they retire at the age of 65.
This climbs to £445,000 if they are unable to get on the property ladder.
Royal London analysts expect that around one in three retirees will eventually be renting from private landlords, at a typical cost of £6,554 a year.
“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 into retirement planning,” said Webb.
With people living longer and interest rates at rock bottom, the required pension pot has jumped by more than £100,000 since 2002-03, when it stood at £150,000.
As a “broad rule of thumb”, retirees shouldn’t see a huge change in their standard of living if their combined pension income equates to around two-thirds of their gross wages before they retire, says the report.
Royal London defines an average earner as making just under £27,000 a year and assumed that retirement would bring some savings including no more mortgage payments, no more pension contributions and no more work-related costs such as travel.