IN THE BACK
/ PLATFORMS & PENSIONS /
TOO CLOSE TO HOME
John Blowers reveals some uncomfortable truths about the type of
social life you will be able to afford with the average UK pension pot
H
ERE ARE THREE
“RULE-OF-THUMB”
NUMBERS that are
often bandied about
when it comes to
planning your retirement.
• £100,000 – the average pension pot
in the UK at retirement
• £500,000 – a pot that will provide a
comfortable lifestyle in retirement
• £1m – the largest tax-free amount
you can save in your pension pot,
which should see you through a
long and active retirement in style
The fourth number is £155 a week
from the state pension (or £8,060 from
age 65 per annum), but I wish I could
assure every reader that this number
were true, as the amount you receive
will depend on your overall National
Insurance contributions.
Let’s start with £100,000 – the
average pension pot at retirement.
What sort of retirement could you
expect from those savings when it is
coupled with an £8,060 per annum
state pension?
A quick whizz through the Money
Advice Service website’s annuity
comparison service shows a £100,000
pension pot for a 65-year-old single
person in reasonable nick would buy
an annual income of £3,132 for life
(increasing by inflation).
Therefore, the average Brit at
retirement is going to have to live on
£215.23 a week, or £11,192 a year.
On the face of it, that doesn’t sound
like much, but remember your
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lifestyle in retirement will be very
different to the one you have when
you are working. There are additional
costs involved when you are
employed (and raising a family), but
being at work typically means you’re
not spending money. When you’re at
leisure, the amount you spend does
seem to rise.
I’m going to assume that our
average Brit retiree continues to live
in their own house (a two-bedroom
cottage), with the mortgage paid off.
What kind of bills can you expect
to have in these circumstances and
will your retirement income limit
your lifestyle?
There is a surprisingly large
amount of information on the
subject of living costs, although
be aware that there will be quite a
spread, depending on whether you
live in Chelsea or Orkney.
There is also a consensus of what
constitutes an acceptable minimum
lifestyle and for those of us who like
a tipple every now and then, alcohol
is included in the list along with
heating, television, food and bills.
According to the estimates of the
Trustnet Direct Retirement Centre,
a £100,000 pension pot, combined
with the state pension, is likely to
just about haul you out of the “hand-
to-mouth” lifestyle and into the
“quiet-and-comfortable” category.
I’m going to try to describe what
this actually means. In our scenario
within our average two-bedroom
house, you will be able to keep it
relatively warm, although you won’t
be able to go crazy and heat all the
rooms all the time. You will have a
phone, the internet and basic free
television (but no holidays, though).
Sounds OK? Well, life gets a bit
tougher after that. The food you
buy and the clothes you wear will
be more Lidl and Sue Ryder than
Waitrose and Jaeger.
The pension you worked so hard
to save for will allow a little luxury
in terms of the occasional treat in
the kitchen, but forget thoughts of
eating out or a takeaway.
And this is where we pause for
thought. The government has set the
state pension at a level that it views
as enough to get by on. There is little
scope for paying out any more than
that (and we assume you’re getting
the full £155 per week here).
The pension will top you up by
a further £60 per week, which will
allow you to go and live a little –
but not a lot.
So, what activities that you used
to enjoy will you have to wave
goodbye to? Holidays, birthday and
Christmas presents, eating out and
running a car will all be out of reach.
Golfing or other club memberships
will be a struggle to maintain, as
will other entertainment such as the
cinema or theatre.
Effectively, anything that involves
going out tends to cost money,
which is why many pensioners live
reclusive lifestyles.
Now I understand why my parents
drop everything if we invite them
to Sunday lunch and it’s a stretch
to describe them as anything other
than “care-free”.
They say that it becomes very
difficult to live frugally when you
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