How much are YOU sav­ing for re­tire­ment?

New fig­ures show more peo­ple are sav­ing than ever be­fore but the mon­e­tary amount may still be in­ad­e­quate

Shares - - CONTENTS - Tom Selby, Se­nior An­a­lyst, AJ Bell

Last week we were treated to a slew of statis­tics from both the Of­fice for Na­tional Statis­tics (ONS) and HM Rev­enue & Cus­toms (HMRC). The fig­ures paint a fas­ci­nat­ing pic­ture of the way re­tire­ment is chang­ing in the UK, as well as the chal­lenges faced by both in­di­vid­u­als and govern­ments.

Here are my three big take­aways from the of­fi­cial num­bers:


UK sav­ings rates were in the pits in the af­ter­math of the 2007/08 fi­nan­cial crash. In 2011/12 5.3m peo­ple were sav­ing through per­sonal pen­sions, the low­est fig­ure on record.

Fast for­ward to the data for 2015/16 pub­lished last week and pen­sion scheme mem­ber­ship has jumped by a mas­sive 70% to 9m. That’s 3.7m ex­tra peo­ple sav­ing for re­tire­ment.

The main driver is au­to­matic en­rol­ment, a re­form pro­gramme launched in 2012 that will even­tu­ally mean all em­ploy­ers have to put work­ers aged 22 or over into a pen­sion scheme. Peo­ple are free to opt out of their work­place scheme but so far most (around nine in 10) haven’t done so.

While some work­ers, in­clud­ing low-earn­ers and the self-em­ployed, are cur­rently ex­cluded from auto-en­rol­ment, there is no doubt­ing the im­pact the changes have had in re­vers­ing the post-crash de­cline in pen­sion scheme mem­ber­ship.


Ac­cord­ing to the ONS, av­er­age con­tri­bu­tions (mem­bers plus em­ploy­ees) into oc­cu­pa­tional pen­sion schemes stand at just 4.2% of pen­sion­able salary.

It’s par­tic­u­larly wor­ry­ing that mem­ber con­tri­bu­tions dropped from 1.5% in 2015 to 1% in 2016. Even with 40 years of sav­ings on an av­er­age UK salary that is go­ing to get you a pen­sion pot of around £125,000. That’s a healthy amount but nowhere near enough to pro­vide a de­cent in­come for 30 years of re­tire­ment.

This will edge up­wards as min­i­mum auto-en­rol­ment con­tri­bu­tions are due to rise to 8% by 2019 (4% from the em­ployee, 3% from the em­ployer and 1% in tax re­lief), but even this won’t be enough to pro­vide a good re­tire­ment in­come for most peo­ple.


Tax re­lief in the UK is granted based on your tax band or ‘mar­ginal rate’. So a ba­sic-rate tax­payer gets 20% tax re­lief, higher-rate 40% and ad­di­tion­al­rate 45%.

With­drawals are taxed at your mar­ginal rate, but peo­ple tend to pay less tax on the way out than the way in be­cause their in­come needs in re­tire­ment are lower.

With more peo­ple sav­ing in pen­sions, the net re­sult is a rise in the amount the Gov­ern­ment spends on tax re­lief to al­most £25bn in 2016/17.

Spec­u­la­tion has al­ready started sug­gest­ing pen­sion tax re­lief could be cut back in the Bud­get later this year. Thus if you were al­ready plan­ning to pay into your pen­sion in the cur­rent tax year, it may be worth do­ing so be­fore the Bud­get.

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