One in Three Brits Don’t Know How Big a Pension Pot They’ll Need to Fund Their Retirement
By: Northstar Wealth Management
Tags: Money, Pensions, Financial Planning, Retirement

New research shows that over 1 in 3 Brits don’t know how big a pension pot they’ll need, and 1 in 5 don’t even know how much they have.

It’s an age-old question (in more ways than one): how much pension do I need to save right now, in order to have enough pension income when I retire? It’s also one of the most important questions anyone can ask about their personal finances. Yet new research indicates that a huge number of Brits have no idea how to answer it — to the extent that many are ignoring it altogether.

A study¹ by Unbiased in partnership with Opinium has revealed alarming levels of uncertainty over the three key questions of pension saving:

1. What income do I want in retirement?

2. How much do I need to save up to get that income?

3. How much do I have saved up now?

The findings show that there are big holes in people’s knowledge of their needs in retirement, and of their level of retirement savings. Alarmingly, this is prevalent even among those who are soon to retire.

Pension questions? The UK’s favourite answer is ‘Don’t know’

When Brits ask themselves about their pension arrangements and retirement prospects, one answer consistently outstrips all the rest. And that answer is, ‘I’m sorry, I haven’t a clue.’

The easiest issue for people to consider is how much income they want when they stop work. Or so you would think. Remarkably, one in three people (34%) say they don’t know how much retirement income they will want. In some ways this is understandable — they have little idea of how their lifestyle and needs might change between now and later life. But even this is revealing, as it shows that they have yet to give this question serious thought. Most striking of all, this ‘Don’t know’ response does not vary even across age groups: as many unretired people aged 55 and over had no idea what income they would need, as those aged 18–34 and 35–54. A solid third of the population simply haven’t considered their retirement needs.

Given this level of uncertainty, it is hardly surprising that people are similarly unsure about how much pension they need to save up. An even larger proportion (37%) said they have no idea what size pension pot they will need, and this was the single most frequent response to the question. Again, there is almost no variation across age groups.

At the root of the problem is the fact that a sizeable minority of Brits have no idea how much pension they have saved right now. There is more certainty here, but still one in five (20%) of people don’t know how much they have. Again one would expect more certainty among people nearer retirement, but this group turns out to be the most unsure, with nearly one in four people (24%) having no clear idea of what they’ve saved to date.

It’s hard to avoid the conclusion that between a quarter and a third of Brits have their heads firmly in the sand when it comes to thinking about their retirement income — even if retirement is less than a decade away.

Brits over-estimate their pension spending power

Thankfully, most Brits do seem to have some idea of what they need to save for retirement. Unfortunately, in many cases those estimates are some way wide of the mark.

Of the people who have any idea what income they hope for, a big majority (69%) want at least £20,000. However, nearly half (44%) of those who were willing to make a guess, thought that a pension pot of £100,000 would be enough to meet their needs in retirement.

Based on a cautious estimate of growth, a £100,000 pension pot buy is unlikely to provide more than £7,000 a year at most. Even when added to the maximum new state pension (£9,110 in 2020/21) this gives only £16,110 a year for around 20 years (and significantly less if you choose an annuity for guaranteed income). For a £20,000 income, a person would need the full state pension plus a pot of at least £170,000.

But are UK savers on course even to get their £100,000 pension pot? Well, some are. Over a fifth (23%) of savers aged 35–54 have more than £50,000 in their pots at this time, and almost as many (22%) of 18–34 year olds say the same. This suggests that the message is getting through, with the upcoming generations significantly ahead of Generation X when it comes to preparing for the future. These groups look likely to break the £100k barrier, and in some cases achieve the desired £20,000 a year income.

Others, however, are not so well placed. Four in ten (39%) of those over-55 have less than £50,000 in pension savings, like nearly half (45%) of those aged 35–54. Even more worryingly, 21% admit to having no pension savings at all — including 17% of those aged 55+. This figure is 1 in 4 (24%) among 18–34 year olds — the group with the most power to fix this problem.

If you would like to talk about any of the issues in this article or need more general help with your finances, please get in touch with us.

This article first appeared on Unbiased.

Read this article on the NorthStar website.

1 Survey by Unbiased and Opinium of 2,000 non-retired UK adults in June-July 2020.