To top up the new state pension to average income levels, savers will need huge sums in their pension pots.
Workers need to save up hundreds of thousands of pounds to get a decent income in retirement even if they qualify for the new state pension announced this week, experts say.
To achieve an income of £16,400 a year, which is the amount the Joseph Rowntree Foundation says is needed for a minimum standard of living, you would need £270,000 in pension savings to supplement the new "single-tier" state pension of £144 a week.
This lump sum would buy you an index-linked annuity income of £8,912 a year. When added to the new state pension of £144 a week or £7,488 a year, the annuity would bring your income to the £16,400 threshold.
Someone who has no entitlement to the state pension would need a lump sum of £480,000 to achieve the Joseph Rowntree Foundation's recommended income. Under the new single-tier system, anyone with less than 10 years' National Insurance contributions is likely to get no state pension, whereas currently even a year's contributions will give you some entitlement.
Just to get a retirement income equal to the minimum wage (£12,070) would require a lump sum of £130,000, or £340,000 for those with no state pension entitlement. To equal the "living wage" of £14,527 outside London, the figures are £190,000 and £400,000; for the London living wage of £16,672 you would need £280,000, or £490,000 without the state pension.
The sums are even greater if workers want a retirement income equal to the national average salary of £25,496 £550,000 for those getting the new state pension and £760,000 for people who wouldn't qualify.
The figures were calculated by AJ Bell, a company that offers self-invested personal pensions (Sipps).
Billy Mackay of AJ Bell said: "The proposed flat-rate pension makes it easier to plan for retirement and for savers to understand what they need to save, but it doesn't remove the need to save.
"You would need more than £200,000 to fund the basic state pension if it didn't exist, so this is a significant start. But £144 a week is the equivalent of just £3.84 an hour far below the minimum wage and well below the living wage."
He added: "If they are to live comfortably in retirement, savers need to have a clear plan around the significant amount of money that they need to invest into pensions, Isas and other saving plans. This is particularly true of those who are self-employed and those who aren't eligible for a company pension."
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