New data shows how much young people will have to save

Morning View
Morning View

The average earner will need to build up a pension pot of £260,000 to avoid a drop in living standards when they retire.

This depressingly high figure comes from an analysis by Royal London.

It is based on the rule of thumb that people need a gross pension income of two-thirds of their gross wages.

The Royal London sums are also based on the assumption of someone retiring at the age of 65, but part of the study’s projected retirement income is made up by the state pension.

Younger people today will not qualify for the state pension until they are closer to the age of 70 than 65.

Even people who are currently middle aged, in their mid 40s, will now have to wait until 68.

There could be further reforms so that the very youngest people alive today are over 70 before they get a state pension, which might in any event be means tested by then (rather than universal).

The Royal London estimate makes particularly harrowing reading for people who cannot afford to get on the housing ladder.

They will need £445,000 to maintain their living standard because they will not be living in a mortgage-free property, and will have to continue to pay rent in their twilight years.

This new data makes for grim reading and casts fresh light on the policy of having ultra low interest rates for so long.

Not only have low rates pushed property prices kept house prices artificially high, and so out of the reach of many young people, which makes their retirement prospects more bleak, they have meant that pensioners need a bigger nest egg to get an investment income.

Such low interest rates help people and businesses who have over borrowed but inflict pain on debt-averse people who have saved diligently through their life times.

People are living longer than they once did, which is very good news, but it brings with it financial challenges.