‘Nasty shock’ waiting for high earners in retirement
Just one in three high earners with household income above £100,000 are on track to afford a comfortable retirement lifestyle, Britain’s largest broker has warned.
Hargreaves Lansdown has estimated that 15pc households are headed toward the “comfortable” standard of living set out by the Pensions and Lifetime Savings Association, an industry body.
A comfortable retirement requires an annual income of £54,500 for a couple, PLSA research found. This would fund a luxurious lifestyle, including two foreign holidays a year and up to £1,300 per person for new clothes and footwear.
But even the highest earners will struggle to meet this quality of retirement, Hargreaves Lansdown said. The broker estimated that in the highest-earning quintile, where the average household income is £102,800, just one-third were on track to achieve the golden standard in old age.
Helen Morrissey, of the broker, said: “There is a nasty shock in store for higher earners when they hit retirement and realise they have not saved enough to give them the income they were expecting.
“Only 32pc of the highest earning households are currently on track for a comfortable retirement income. This is the kind of income that affords the things plenty of people expect to be able to enjoy in retirement, like several overseas holidays and trips to the theatre.
“Higher earners are likely to have a bit more wiggle room in their budgets and yet so few are on track. Drilling down further, only 71pc of them are on track for even a moderate retirement income – there is a real disconnect here between current and future lifestyles.”
Ms Morrissey added that while higher earners were likely to have larger mortgage costs eating away at their savings, it could be that many were adopting a “set and forget” attitude toward their pensions.
“They either think that an 8pc contribution rate is enough or else they have not revisited their contributions for quite some time, but the reality is that if this is not addressed, they face a drastic change in lifestyle that they may not be prepared for.”
A single worker aiming for just a moderate standard of retirement would need to have built a private pension pot worth at least £281,000 by the time they reach the state pension age, according to estimates from the pensions specialist Aegon. That assumes the state pension continues to rise in line with inflation, so workers would have to save even more if the Government abandoned its “triple lock” policy.
A 22-year-old today would need to contribute 15pc of their salary each year to their pot in order to achieve this, Aegon estimated. That is almost twice as high as current minimum contribution levels of 8pc.
Hargreaves Lansdown estimated that 42pc of households were on track to achieve a moderate standard of living in retirement.
However, the cost of living crisis has placed increasing pressure on workers’ ability to save for the long-term. One in five workers either stopped or reduced their pension contributions in 2022, according to a survey from the Pensions Management Institute, a trade body.
Reader Service: Do you know what makes a good pension pot? Learn how to find your old pensions to boost your savings.