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.
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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