A new study has emerged this week that suggests the comfort pension level generally sits at £15,000 a year. This week Prestige Tax and Trust services asks what this means for your pension planning strategies.
Prestige Tax and Trust Services is here to help you with any estate planning issue you might encounter. We seek to give you the peace of mind you need to plan out your finances for the long term.
As such, the news this week concerning the pension comfort level intrigued us – we like to make sure you know everything you need to ensure that whenever you’re ready to leave the world of work, you have a nice hefty pension pot, ready and waiting to support you through your golden years.
People Feel Comfort with £15,000 in the Pension Pot
The BBC reported that this week, the National Employment Savings Trust (NEST) released a report suggesting that if you are thinking about saving for your retirement (and you should be, as the earlier you start, the more you save), then you should be saving enough to receive £15,000 a year from your pension pot.
Specifically, the report found that there is a significant rise in what they label ‘wellbeing’ – in other words, quality of life – when pension savings totalled between £15,000 and £20,000. According to survey results, 43% of those questioned who fell into this category felt financially secure, whereas only 23% of people whose savings provided less than £15,000 a year felt financially comfortable.
The Balance of Happiness Benefit
However the trust also advocated balance, as they further suggested that there is no happiness benefit above £40,000 a year. At Prestige, we see the value here, since a useful strategy for long term pension saving is to amass enough to support you comfortably through retirement, but not enough to lessen your quality of life in the here and now.
So how does this translate to help you craft a savings plan? Well changes to state pension policies means that by the time they are implemented in April 2016, will be worth at least £7,500 a year. Use that as a benchmark.
When Should You Start Saving to Achieve the Comfort Threshold?
With a 4% employee and 3% employer contribution and the state pension, we soon find that a 22 year old earning £20,600 a year, for example, would be able to expect an outcome of £14,260 a year. This means they would only have to make the minimum contribution to achieve the comfort threshold.
However a minimum contribution won’t cut it if you start saving later. Using the same figures as a benchmark, we soon find that if you start saving at 30, you only walk away with £11,790 a year and if you start saving at 40, you’ll only end up with £10,210 a year.
The moral of this story is that you need to start saving as early as possible if you wish to have enough money to truly experience the joys of your golden years. The earlier you start, the less you’ll have to give out of your monthly salary to reach the comfort pension level.