Young savers should increase their pension contributions by an initial £40 per month above auto-enrolment (AE) minimum rates to maintain their lifestyle in retirement, according to Aegon.
The firm noted that income from the state pension and minimum AE workplace pension contributions was “unlikely to provide the lifestyle many aspire to”.
As an example, the firm pointed out that its own analysis showed that an employee in their mid-20s earning £20,000 per year risks falling short of the required savings unless they contribute an additional 4.4 per cent above the 8 per cent minimum combined pension contribution for AE.
Aegon's analysis showed that the example employee could build a fund worth around £99,900 at state pension age by saving at minimum AE contribution levels, £54,800 below the amount required to maintain their lifestyle.
This extra amount would translate to around £40 extra from take-home pay per month, while an employee in their mid-20s earning £30,000 a year would need to contribute an extra £136 from their monthly take-home pay to allow them to retain their lifestyle in retirement.
Aegon pensions director, Steven Cameron, said: “Maintaining your ‘working age’ lifestyle throughout retirement is something many people aspire to but for most employees, saving just the required minimum levels for AE won’t deliver.
“The best chance of reaching your retirement goals is to plan ahead and look for ways to save more than the AE minimum as early as possible. It can also pay to seek advice to ensure you are on track and have the best investment approach to reach the retirement you aspire to.”
The analysis from Aegon was released in response to an article in The Times penned by Institute for Fiscal Studies director, Paul Johnson, which argued that typical graduates should do at least two-thirds of their pension saving after the age of 45.
Johnson stated that workers should bump up saving in later life and called for AE contribution rates to be increased with age, or to coincide with major life landmarks such as offspring reaching adulthood or a mortgage being paid off.
However, he conceded there were risks to that strategy, if the saver became ill or lost their job in their fifties you might regret that lack of saving earlier on.
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