The sun might be shining again, most of us have been jabbed in the arm and the rule of six will soon be a distant memory… perhaps.
But as we emerge into the light of a new normal, the effects of some of the emergency financial decisions we made last spring are only just making their presence felt.
When the extraordinary events of 2020 hit home we did exactly the right things. We reined in the spending, cut out every direct debt and standing order we could and kicked the longer-term money matters into the long grass – just for a while.
Now, with stark warnings emerging over the effects of those changes if left unresolved, it’s time to unravel our emergency measures, especially when it comes to retirement savings.
The average working adult has around £33, 800 set aside for old age. It sounds like a decent chunk but pension specialists recommend that someone retiring at 67 should have at least £237,000 saved for a reasonable retirement, so the average Brit’s pension stands at just 18 per cent of what we need.
Women, with average savings of only £22,700 set aside, are short by almost 90 per cent, according to a survey from price comparison site Finder.
A fifth of the population has no private or workplace pension at all.
Millennials have £17,175 saved on average, Gen X-ers have £35,175 saved, while baby boomers have £61,546 in their pension pot.
Zoe Stabler, of Finder, says: “The pandemic has been extremely tough in many ways, with a lot of people having to take unprecedented steps in order to stay afloat financially. It is understandable that some Brits have reduced, or paused, payments in order to direct money to more immediate priorities.
“However, if you are someone who has had to do this, it is vital that you look at replacing this money or at least starting to pay into your pension again. The power of compound interest means that what you pay in now could be a life-changing amount if you’re able to leave it for decades.
“As an example, £10,000 paid in now, earning an interest rate of 5 per year, would be worth £25,330 in 20 years, £41,259 in 30 years and £67,207 in 40 years.
“If you opted out of your workplace pension in order to save money during the pandemic, you should look to rejoin it as soon as you can. If you contribute 5 per cent of your salary each month towards it, your employer is obliged to pay a minimum of 3 per cent on top of this, which is effectively free money topping up your pension!”
So what should we be aiming for, how and by when?
Nathan Long, senior analyst for Hargreaves Lansdown, says: “You should ideally have a retirement savings vehicle, such as a pension or lifetime ISA, where you can put money away each month and benefit from a government bonus or tax relief.
“If there’s a pension scheme at your work and you’re not paying in, why not? And if you’re self-employed but aren’t saving for retirement, why not?”
A moderate annual income in retirement is £20,200, according to the Pensions and Lifetime Savings Association, with £9,339 of that provided by the state pension if you receive the full benefit.
The general rule is to save 12 per cent of our income, including tax relief and employer contributions every year, but few people start at 18, which that figure assumes along with the expectation that we all retire at 68.
Mr Long suggests a few actions to take according to age:
18-34 year olds:
Find out where your money is invested. A default fund is a broad fit for many but it can be quite conservative, so taking a bit more risk with a more adventurous fund is a great opportunity to boost your returns when you’re young.
Pay in more if you can. If you’re able to contribute more to your pension you could get extra tax relief and possibly more money from your employer too.
35-54 year olds:
It’s tidy-up time. You may have several pension pots by now so consider consolidating them to save the admin headache (it may lower the costs too).
You may be at peak earnings in your career now so try to boost your pension contributions – you’ll get more tax relief and possibly extra cash from your boss.
55 years +:
Get to know your pension, like really know your pension. How much is in there? Do you need to turbo-charge your contributions to give it a final boost before you finish work? And how can you take money out when you retire?
Consider when and how you’ll retire. Where do you want to live? Would you like to reduce your hours and go part-time in the final years before retiring? If you have a partner, schedule a time to discuss these things.
MoneyHelper, run by the government’s Pension Advisory Service, provides free and independent advice on retirement savings including pension saving calculators to give individuals a clearer picture of how their current savings and savings habits will translate into income in old age.