Could you get by on less than the living wage?
Average private pot would provide an income of £2,070 a year
Average private pension pot would provide income of just £2,070 per year. Pensions. It’s a topic that fills many with dread, often avoided for as long as possible. With Pension Awareness Day on 15th September, pensions advice specialist Portafina is educating savers on the benefits of saving into one at the earliest opportunity.
A long-term investment, the income from pension saving is accessible for most from the age of 55. Pensions receive generous tax incentives and workplace schemes are usually boosted by employers as well. For a basic-rate taxpayer, this means that for every £80 they contribute, their pension immediately grows by £20 and possibly much more if the employer contributes as well. These incentives encourage investors and help towards ensuring a comfortable retirement.
Today’s average private pension pot totals just £59,5641, which would provide an annual income of just £2,070. That reduces to £1,8952 for those wanting an income to be paid to their surviving spouse.
Added to the full State Pension of £8,093 for eligible new retirees, the total annual income would be just £10,163. By comparison, the national living wage would provide a pre-tax income of £14,976.3
According to the Association of British Travel Agents, more than a third of 55 to 75-year-olds would spend up to £5,000 a year on just one holiday, and the average over-50 spends £3,8204 a year on luxuries like nights out, meals and gadgets. When balancing an active social life with a limited budget in later life, could you get by on £10,163 a year?
With this in mind, Jamie Smith-Thompson, managing director of Portafina, offers direction on how to make the most of your private pension from day one:
- Make the most of your workplace scheme. If your employer offers to match your contributions, that’s free money and can really accelerate the growth of your pension. Making a £100 contribution and seeing the pot grow by £200 is a great feeling, and that’s before any tax incentive from the government and investment growth.
- Start early, even if you can’t contribute much. The biggest asset to any saver is time, and small amounts add up quickly, helped by the snowball effect of compound interest. Increasing the payments when you receive a pay rise will help the fund to grow even more without you having to downgrade your lifestyle.
- Make sure the investments suit you. If you’re in a workplace scheme, you may be put into a default fund that isn’t completely appropriate for your circumstances. Ask to talk to someone about your options, or talk to a financial adviser for personal recommendations on where to invest your money.
“It’s ironic that what is perhaps the most generous and effective savings product is so misunderstood. Pensions have the ability to change your life and allow you to create the future lifestyle you want.
Even small changes to your financial habits, such as making slightly higher monthly contributions to your pension or switching to one with lower fees, can make a huge difference to the amount of money you have in the future.”
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Releasing your pension benefits early could reduce your income at retirement and therefore is only suitable for a limited number of people and circumstances.
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