Is your pension pot on track?

Most people in Britain aren’t saving enough to retire comfortably, finds Jessica Beard. Here’s how much you need

It’s easy to lose track of the size of your pension pot, especially when retirement seems a long time away. Automatic enrolment means your pension is likely to be growing every year, but that’s no guarantee that you’ll have enough to retire on comfortably.

Though London more cash-saving residents than anywhere else in the UK, still only 14pc of people put away enough to retire “comfortably”.

That is according to a report published by investment firm Blacktower Financial Management, which found that you need to have saved £375,676 to live comfortably in retirement in future.

That equates to a yearly income of £26,834 for 14 years from age 68. The wealth firm assumed a person needs 75pc of their starting salary per year to

Buying a home and having children are important milestones. But do you know how much you should have saved at every step? live well in retirement. But most people in Britain are not on track to hit this target, said Nigel Peaple, of trade body the Pensions and Lifetime Savings Association (PLSA).

To reach the goal of having a pension pot worth £375,676 by the day you stop work, savers would need to funnel away £8,348 for every year of their career. This means that a 24 year-old should have put aside this amount after their first year of work.

By the age of 30, you need to have hit the £58,000 mark, and that rockets to £142,000 by the age of 40. By 50 you should have set aside more than £225,000 and as you near retirement at 60, that should swell to £309,000.

Paul Brown, of Blacktower, said these targets should be taken as a rough goal. The estimates are based on national averages and so offer a goalpost, but everybody’s situation will be unique, he added. In order to plan for retirement, savers must assess several different factors including their other assets, debts including mortgages, when they plan to draw an income and their family.

“People need to be aware of whether or not their plans are on track. I’ve seen so many people who leave it and when they reach a big birthday like 40 or 50 they realise they won’t have enough to retire soon, and panic,” Mr Brown said.

However, he conceded that, in reality, people’s savings are not so linear, as a person’s income will generally grow over their career, and by their 50s or 60s, other spending commitments may have fallen away.

As a general rule, 10-15pc of your annual gross income should be saved throughout your working career, he advised. With reasonable investment returns, that should give a pension pot proportionate to the income you have enjoyed during your working life. That portion of your income includes employer and employee contributions and does not all have to be directly invested in a pension, so long as it is labelled for your future in retirement, Mr Brown said.

The PLSA published retirement living standards as a guide of what life after work looks like at three different levels: minimum, moderate and comfortable. The Blacktower report’s annual retirement income of £26,834 falls between the moderate and comfortable levels of the PLSA.

Someone on a “comfortable” income would live off £33,000 and have financial security and flexibility with some luxuries. This includes a £56 weekly food shop and three weeks in Europe every year.

Mr Peaple said: “Most people think they will have a better pension than they are going to get.” much when he retires.

The doctor said he was worried this would leave him with nothing.

Up to £40,000 a year tax-free can be saved into a pension but a big pay rise can cut a high earner’s allowance down to £10,000 under the “taper”.

Hilary Salt, of adviser First Actuarial, said: “This is a tax on ‘excess’ pension savings – so it is a tax paid in advance on part of the pensions income they will get in future.”

Kevin Walker, of BW Medical Accountants, said the doctor’s bill will likely be smaller anyway as due to a quirk, he can use any “spare” allowance from the previous three years and reduce his liability.

‘I’m in the red and I’m worried this will leave me with nothing. I’ve worked for free’