£300k pension pot to maintain retirement lifestyle

The findings from Aegon assumed that people on an average annual salary of around £27,000 should be targeting an income equivalent to two-thirds (67%) of their working age income - £18,000 a year or £1,500 a month.

To plug the gap, an average earner entitled to the full state pension of £691 a month would need another £809 a month from workplace and other private pensions to meet the target.

Aegon’s analysis of annuity rates found that at age 65, someone in good health would need a pension fund of £301,500 to buy a guaranteed income for life which would fill the gap.

Someone earning £13,000 would need a pot of around £65,300 to maintain their current lifestyle, while someone earning £56,000 would need to build up a £612,700 pot, according to Aegon’s calculations.

The research assumed someone earning £13,000 would need an income equating to around 80% of their working-age pay, while someone on £56,000 would need around half (50%) of their current income in retirement to maintain their current lifestyle.

The pension freedoms launched in 2015 generally mean that over-55s now have a much wider range of choices over how they use their pension pot and they are no longer required to buy an annuity.

Annuities can give retirees a set income for life, guaranteeing that they will not run out of money in their old age, but they have been controversial due to falling rates in recent years and claims that people are not shopping around to get the best annuity deal.

“It’s perhaps not surprising that people are under-saving when you see how much generating an annual income of £18,000 costs,” said Steven Cameron, pensions director at Aegon.

“The amount is so high because life expectancies have grown significantly in recent decades and long-term interest rates, on which annuities are based, are currently very low.

Minimum contributions into workplace pensions will gradually be increased in the coming years.