As 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, Unbiased unveils a new Pension Calculator to help people of any age plan for the future. Article by Nick Green.
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:
- What income do I want in retirement?
- How much do I need to save up to get that income?
- 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.
In our article ‘What pension income will my £100,000 pot buy me?’ you can see what this size of pot might generate. Based on cautious estimates of pot growth, it 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.
How the Pension Calculator can help you plan to save
Around a fifth of Brits seem to be reasonably well prepared for retirement. But many are not – and many more simply don’t know. One problem is that people find it hard to relate the money that they pay into pensions now with the income they will receive in future. They are also often unsure how much they need to pay in.
Unbiased has set out to address this problem with our free Pension Calculator. You can use it to find out if you’re saving enough and discover ways to boost your pension. Most usefully, if you tell it how much you’re paying into your pension now, it will give you a rough estimate of what income you could expect in retirement.
Using the Unbiased Pension Calculator
The Pension Calculator lets you predict your likely income from private pensions when you retire, just by entering details of your current circumstances. Based on certain assumptions about pot growth (which will sometimes differ in reality), the calculator works out how large a pot you could build up, and what this pot would provide in income if you were to use a drawdown scheme.
First, you enter
- Your age now
- The age you hope to retire
- Your current income
- Whether your pension is workplace or personal
- The estimate current size of your pension savings
Next, you fill in what level of pension contributions you (and your employer) make, and the income you hope for in retirement. As a default, we assume this will be two-thirds of your current income, but you can change this.
Then click Calculate to see your results:
In this example, the results show that the user needs to make some changes in order to achieve the income they hope for. The calculator then lets you play around with your figures to work what changes might achieve this. For example, you can see what happens if you change your level of pension contributions:
You can also see the effects of a change in your employer contributions, your chosen retirement age, or your current income. You can even simply drag your desired pension income to where you want it to be, and the calculator itself will show you how to achieve this.
Improve your retirement planning with the Unbiased Pension Calculator
It’s clear that too many people in the UK simply aren’t thinking enough about their future. With all the pressures of getting by day-to-day, it’s easy to avoid thinking about where your money will come from in retirement. But the Unbiased Pension Calculator makes it wonderfully simple to see how even a small change made now could have a massive benefit to you a few years down the line. Click the link now and try it for yourself!
Alternatively, if you're looking for assistance in setting your financial goals, a financial coach may also be able to help you.
1 Survey by Unbiased and Opinium of 2,000 non-retired UK adults in June-July 2020.