Pension Money
28 Oct

1, 2, 3, 4, 5 - In 5 Years Will Your Pension Pot Still Be Alive?

 Pension Money

Research from True Potential has shown that millions of pension pots in the UK could be empty within 5 years of retirement.


Retirement is supposed to be the relaxing reward for years of hard work, yet UK savers have been warned that they may not find their retirement years as relaxing and stress-free as they might have expected.

True Potential has carried out its ‘Tackling The Savings Gap’ research and has found that Brits are saving just a quarter the amount necessary for a comfortable retirement, meaning that pension pots could run dry within just 5 years of retirement.

The year-long research surveyed over 8,000 people and found that around £23,000 per year would be needed for UK savers to enjoy a “comfortable” retirement. Based on current saving patterns, UK savers are set to build up a fund of just over £120,000 - yet that is just a quarter of the £469,000 that would be needed for savers to receive the income they desire.

With the £469,000 total fund, savers could draw down 5% over 20 years, but few UK savers will achieve a fund that size and the average UK pension pot will be empty within 5 years based on a £23,000 per year income.

The picture is all very bleak, with just 4% of savers confident they could survive in retirement on the average fund of £120,000.


So what can be done to brighten up the retirement picture?


Start saving now if you aren’t already!

The savings gap that the research points to may not be as troubling as it initially seems. With the government introducing auto enrolment to help and encourage people to save from an earlier age, the picture may look a lot brighter in a few decades time.

Thanks to auto enrolment, workers are automatically enrolled into a corporate pension scheme from the age of 22 if they pay tax and the opt out rates have been incredibly low, which means that workers across the country are now saving into a pension pot from the age of 22 when they wouldn’t previously have started saving so early.

Auto enrolment should help increase the size of our pension pots, therefore, but not everyone is invited to the auto enrolment party. Those not earning enough to be enrolled in their company’s pension scheme and self-employed workers will miss out on that ‘automatic’ encouragement to start saving and it’s vital that they don’t get left behind. This group has to take the initiative themselves, then, to start saving if they aren’t already if they won’t to avoid the nightmare scenario of an empty pension pot after 5 years of retirement.

For more info and auto enrolment help, check out our auto enrolment advice page.  


Increase those contributions

As @PensionsSam said in our blog post on how to retire with a good pension, “Find out the maximum matching contribution your employer will put in to your pension pot, and then save at that level. Investment returns are just the side show, what really makes the difference over the long term are the contributions.”

These are truly wise words and it is important to realise that the amount you (and your employer) contribute is what really makes a difference to a pension pot.

Employers more and more often want to offer top employee benefits to attract and retain the best staff and, as employee benefit consultants, we see day after day the generous corporate pension contribution levels some employers are willing to go to. If your employer is willing to make a large contribution to your pension pot then it’s worth taking them up on that and the income you sacrifice in the present will pay off double in the future when you retire and get access to your corporate pension pot.


Consider some advice if you’re not sure

Many savers think that retirement advice isn’t for them and is rather for savers which can already boast a massive pension pot – one large enough that it needs managed. That’s not strictly true, however, as retirement advice can be for anybody.

The government will begin giving retirement ‘guidance’ to savers upon retirement, but this is not the same as regulated financial advice and may be too little too late. Retirement advice can be worthwhile then earlier in saving for retirement and anyone can benefit from it.

Considering that the cost of retirement advice can pay for itself if the advice increases the funds year after year, retirement advice could be a way to extend the life of your pension pot and you can find out more about DAM’s private retirement advice right here.  



Photo credit goes to Tax Credits

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