30th September 2015
The cost of living in retirement is forecast to soar by nearly 150% by 2050, a new study reveals.
Today’s average 35 year old, who is halfway to possible retirement in 2050, will need to build up a fund of at least £666,000 not taking into account any state pension, just to maintain the same standard of living of today’s retirees.
The research, commissioned by Royal London from the Centre of Economics and Business Research, (CeBR), found that the current average monthly expenditure of a pensioner today, who is not reliant on the state pension, is £1,084 a month and this is set to increase to £2,930 a month by 2050, an increase of 148%. The calculations cover essentials like housing, food, heating and transport, but also discretionary spending.
Two fifths (40%) of young Brits under 40 don’t believe that the state pension will still exist in 2050.
The report, Pensions Through the Ages – Generation 2050 and beyond’, shows that today’s 30 – 40 year olds currently have a median pension pot of £14,000, which is well short of the fund required to cover just the basic £1,715 cost of essentials in 2050. Unless this group start to save more, they could face a retirement in poverty.
In addition, two fifths (40%) of people aged under 40 predicted that there will no longer be the financial cushion of the state pension in 2050. Yet nearly half (49%) of today’s pensioners surveyed said that they relied on the state pension and one in five (20%) of them have no income other than the state pension. If the state pension was not available to 35 year old Brits when they retire they may need to save even more to match the potential loss of the state pension.
Fiona Tait, pensions specialist at Royal London, says: “The scale of the challenge facing today’s 18-40 year olds to secure an adequate income for their retirement, potentially from 2050 and beyond, is quite frightening.
“Royal London research highlights the level of income that people should aim to secure for their retirement if they wish to be able to maintain a reasonable standard of living.
“However, it is very likely that future pensioner spending will be higher than this and so they need to start saving more now. The research shows that median savings pots are £14,000, significantly below the amount needed.”
The majority of 30-40 year olds surveyed (60%) do have a pension in place. Nearly half, (47%) of 18–29 year olds also stated that they have started a pension. But this does also highlight that potentially 40% of today’s 30-40 year olds don’t have any pension provision in place to secure their future income in retirement.
Of those in their 30s who have a pension in place, the average age that they started saving for their retirement was 27. In comparison, today’s retirees said that they started their pension savings at an average age of 31, four years later. For those under 30, the research shows that on average they started saving for a pension at age 24.
The research also established that Brits in their 30s believe that on average they will need 60% of their salary to live on in retirement. In contrast, the reality is that today’s retirees, those aged 65-75 year olds, are on average having to survive on less than half, (48%) of their pre-retirement salary as their income.
Over half (54%) of 30-40 years olds not saving for retirement say it’s because they can’t afford to and a further one in ten, (10%) believe that it’s too early to start saving in a pension. Worryingly, one in ten, (10%) say it’s because they don’t know enough about pensions and thought it was now too late to start.
84% of 18-40s surveyed said that an incentive, where for every £2 they saved they received £1, would be likely, very likely or definitely encourage them to save more.