Savers in their 40s most prepared for later life, yet still some way off a comfortable retirement

Rachael Oku

by , Head of Brand and Communications

23 Sept 2019 /  

23
Sept 2019

Savers in their 40s most prepared for later life, yet still some way off a comfortable retirement

London, 23 September 2019: Research from online pension provider PensionBee has found that savers in their forties are the most prepared for later life, boasting the largest expected pension pots at retirement. In spite of this, the data also revealed that consumers across all age groups are undersaving, however they can easily get things back on track if they can find a way to put an extra £100 into their pensions each month.

Online pension provider PensionBee has analysed the data of over 13,500 consumers, and has found that savers in their forties are the most prepared for retirement. On average, savers in this age group are on their way to building a pension pot expected to be worth £87,203 by the age of 65, an amount significantly higher than savers of all other ages.

Expected pension pot size at retirement

Under 30 30-40 50-50 50+
Average age 27 34 43 54
Average date of birth 10/07/1992 10/07/1985 10/07/1976 10/07/1965
Average pot £3,828 £13,391 £33,290 £48,456
Average salary £22,200 £25,400 £28,800 £27,500
Average monthly personal contribution £53.54 £64.22 £75.54 £71.22
Average monthly employer contribution £40.16 £48.16 £56.66 £53.41
Average pension pot size at 65 £69,574 £80,554 £87,203 £78,294

Source: PensionBee, based on a sample of 13,973 savers. More details on the sample are in the Appendix. We have assumed the pension grows at an annual rate of 5% and that annual charges are 0.7%. Average monthly contributions are based on the minimum required contribution of 8% of qualifying earnings for Auto-Enrolment. Average salaries are taken from HMRC’s national statistics on the distribution of income, and it is assumed that individuals will receive a 2% salary increase per year. Inflation reduces the rate of return. All calculations are based on the average age for the entire group, and it is assumed that the retirement age is 65.

Savers currently in their thirties are on track to amass an average pension pot worth £80,554, while those under thirty are expected to have an average pension of just £69,574 upon retirement. Worryingly, savers in their fifties and over, the oldest age bracket examined in the study, have one of the lowest expected retirement pots, averaging at just £78,294. Savers in their fifties and over are, however, more likely to have defined benefit pensions in addition to their defined contribution pensions.

Propensity to make additional contributions by age

Despite 80% of PensionBee savers having a workplace pension, on average, they contribute an additional £184 to their personal pension each month, significantly boosting their expected pot at retirement.

The research revealed that 30% of PensionBee savers in their forties make regular additional contributions to their pension – more than any other age group. This far exceeds the 23% of savers under thirty who regularly pay more money into their pensions, and 26% of those in their thirties. 26% of consumers aged fifty and over also contribute to their personal pension pots on a regular basis.

Age Consumers regularly contributing
Under 30 23%
30-39 26%
40-49 30%
50+ 26%
Average 27%

Source: PensionBee, based on a sample of 13,973 savers. More details on the sample are in the Appendix.

This insight led the online pension provider to calculate the difference a more affordable additional contribution of just £100 per month could make to the average UK saver’s pension in the long-term.

Expected pension pot size at retirement, with additional contributions

Under 30 30-40 50-50 50+
Average age 27 34 43 54
Average date of birth 10/07/1992 10/07/1985 10/07/1976 10/07/1965
Average pot £3,828 £13,391 £33,290 £48,456
Average salary £22,200 £25,400 £28,800 £27,500
Average monthly personal contribution £53.54 £64.22 £75.54 £71.22
Average monthly employer contribution £40.16 £48.16 £56.66 £53.41
Additional monthly contribution £100 (+£25 tax top up) £100 (+£25 tax top up) £100 (+£25 tax top up) £100 (+£25 tax top up)
Average pension pot size at 65 £124,287 £124,853 £118,640 £94,256

Source: PensionBee, based on a sample of 13,973 savers. More details on the sample are in the Appendix. We have assumed the pension grows at an annual rate of 5% and that annual charges are 0.7%. Average monthly contributions are based on the minimum required contribution of 8% of qualifying earnings for Auto-Enrolment. Average salaries are taken from HMRC’s national statistics on the distribution of income, and it is assumed that individuals will receive a 2% salary increase per year. An additional personal contribution of £100 per month has also been added, alongside a free £25 top up from the government. Inflation reduces the rate of return. All calculations are based on the average age for the entire group, and it is assumed that the retirement age is 65.

It discovered that savers across all age groups would be considerably better off, with those in their forties accumulating an expected pot at retirement of £118,640, over £30,000 more. Unsurprisingly those aged under thirty could make the greatest improvement, almost doubling their expected pots to £124,287. By contributing just an extra £100 per month, those in their thirties could add around £44,000 to their pots, totalling £124,853, while those aged fifty and over could add around £15,000, bringing their expected pots up to £94,256.

Romi Savova, CEO at PensionBee commented: “It’s encouraging to see that almost a third of PensionBee savers in their forties are regularly paying into their pensions, over and above their Auto-Enrolment contributions.

While our data on general retirement preparedness indicates that savers in their forties have the highest expected pot size of £87,203, it’s unlikely that this alone will be enough to sustain the average lifestyle in retirement. The Office for National Statistics predicts that today’s 65-year-olds could expect to live for a further 22.8 years, so while £87,203 looks like a healthy pot size on first glance, it works out as just £3,726 a year over this timeframe, assuming an annuity rate of just over 4%.

With an additional contribution of just £100 a month, a saver in their forties can make a significant improvement to their expected pension pot at retirement. A pot of £118,640 translates to £5,069 a year, assuming an annuity rate of just over 4%, and works out as around £1,300 more per year. When combined with the full State Pension of £8,767, the average couple would achieve a total income of £27,672, roughly the amount suggested by Which? for a comfortable retirement.

This perfectly illustrates why additional contributions over and above the Auto-Enrolment minimums are absolutely critical if savers wish to retire comfortably. While it won’t always be easy to find a spare £100 each month, the long-term benefits are well worth any short-term sacrifices. Plus, many savers are still unaware that they can claim tax top ups on their personal pension contributions, and are effectively missing out on free money from the government. Basic rate taxpayers can get a 25% tax top up, while higher and additional rate taxpayers can claim a further 25% and 31% respectively through their Self-Assessment. That means if basic rate taxpayers make an additional contribution of £100 per month, a further £25 will be added as a tax top up. Planning for retirement can be off-putting and scary, but the message is simple: If you can find a way to put an extra £100 in your pension, just do it.”

–Ends–

Appendix

We compared 13,973 individuals with PensionBee pensions, who are broadly distributed like the general UK population between England, Northern Ireland, Scotland and Wales, albeit with a slightly higher concentration in London and the South East.

The sample includes 4,050 women, representing 29% of the sample and 9,923 men, representing the remaining 71% of the sample. The sample represents an age group of 18-76 years with an average age of 38.

To see how UK pension pots differ, depending on region, age and gender visit our Pension Landscape page.

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