T he hard facts are these: the average life expectancy for a man is now 80, and 83 for a woman. If a person needs an income of £2,000 per month to live on then they need £27,124 gross per year. The full state pension is currently £8,296 per year, which means you need to find £18,828 gross) per year from your pension fund to generate a net income of £2,000 per month for the rest of your life (based on average life expectancy). Retiring at 67 years old means the average man will need a total pension pot of £183,252 and a woman will need £211,245. (This figure assumes current growth rates of 5.3% per annum in excess of inflation on your pension savings.)
It’s a tough thing to do, but sooner or later you will need to have a reality check about your finances after you retire. We are all living longer, which means that our pension savings also need to increase to cover our needs as we get older.
Scrutton Bland offer a holistic approach to investments and pensions which combines tax and financial planning. To find out more contact James or one of his colleagues at 01473 267000 or james.wright@scruttonbland.co.uk
Scrutton Bland’s financial advisers work by asking a number of questions to our clients which enables us to match an individual’s attitude to risk with an appropriate asset allocation strategy. By investing in a range of equities in the UK, US, European and Far East sectors, as well as fixed interest assets including government gilts and corporate loans and the commercial property sector, pensions and investments can provide growth over the longer term without having to take uncomfortable risks. Pensions can also very effectively provide income tax reliefs on contributions and tax free growth before becoming a source of income in retirement.
There are also other things that you can do – the most obvious of which is to manage your savings! If you have had a number of jobs over your career then you may have multiple pension pots, or you may have a lump sum from a bequest or selling a house. Investing this money wisely sounds obvious, but many people still have their savings in low interest accounts, when with a little effort, their money could be earning much more for them. Getting good advice from an independent financial adviser who can look at the whole of the market, rather than steer you to a limited range of investment options, is crucial: if your investments perform poorly then your income will dwindle.
These figures sound frightening, but broken down are not quite as scary: if a man starts saving at 40 years of age (with no other pension savings) then he needs to put aside £256 per month, and a woman would need to save £295 per month in order to get to the level of contributions needed for £18,828 per year. Tax relief on pension savings is generous, and every UK resident (under the age of 75) has 20% of their contribution paid by the government from basic rate tax relief. So every extra £80 you pay to your pension provider is increased to £100. If you pay 40% or 45% income tax then you can reclaim further tax relief of 20% or 25% via your tax return.
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