By Ahmed Bawa, CEO of Rosemount Financial Solutions (IFA)
Everyone wants to enjoy some level of comfort in retirement, to be able to make the most of our later years without having to worry too much about meeting our bills.
However, the reality is that many of us are not putting aside enough to do so, with recent analysis highlighting significant increases not only in the sums needed for a basic retirement, but particularly for those dreaming of some level of luxury once they give up work.
While this presents a challenge for savers in achieving the necessary pension pots, it should also be viewed by intermediaries as an opportunity to build stronger, long-lasting relationships with clients.
How much is needed for a comfortable retirement?
The Pensions & Lifetime Savings Association (PLSA) has established definitions for three levels of financial stability in retirement – minimum, moderate and comfortable – as well as the sums needed to achieve those respective levels.
The minimum, as you would expect, is a pretty frills-free experience for the saver. They would have enough to cover their basic needs, and with a little left over for treats on top, such as eating out once a month and an annual holiday within the UK.
For a single person, the PLSA reckons savers would need to enjoy an annual income of around £14,400 for a minimum level of comfort in retirement, while couples need £22,400.
A moderate level of stability means enjoying more stability and flexibility, including a foreign holiday every year and the ability to eat out multiple times each month, as well as pursue hobbies.
At this level, the PLSA calculated a single person would need to enjoy an annual income of £31,300, while a couple would need to receive £43,100.
Finally, there is the comfortable level, which would allow the savers to be more spontaneous with their cash. As a result they could have not only a foreign holiday but several minibreaks across the year, alongside things like streaming service subscriptions, regular beauty treatments and the like.
That spontaneity comes at a price though, with single savers needing £43,100 per year, and couples requiring £59,000.
The rising cost of retirement
What’s so interesting about these figures isn’t necessarily the numbers themselves, but the trends behind them. Because the required sums for each level of retirement have grown substantially over the last year as a result of high inflation and cost of living pressures.
The amount needed for a basic level of comfort for a single person has jumped £1,600 in the last year for example, while for moderate it has risen by £8,000.
As food prices and energy bills have grown, so too have the sums needed in order to have some level of stability in retirement.
Opening the door for advisers
Analysis like this from the PLSA should be seen as representing a real opportunity for advisers. While the PLSA’s calculations are only ever going to be illustrative, they do a good job of showcasing just how much needs to be put aside if we are to be able to do more than simply cover the bills in our later years.
As a result, they can be a powerful tool for advisers in highlighting not just the importance of retirement saving, but of effective retirement planning through the use of a qualified adviser.
After all, anyone can blindly open a pension and contribute to it regularly, but there is no guarantee that doing so will leave the saver with much of a pot once they leave the workforce.
It’s only with the guidance of a proper financial adviser that the saver can be confident about their long-term pension planning, that their money is invested in the right assets for their future, and that the plan will be adapted as they near retirement.
This is an important message for advisers to get across to their clients, to educate them not only on how crucial it is to get into the pension saving habit but the tactics to employ to ensure that a sufficient amount is saved.
What’s more, the nature of pension saving and the need for regular reviews offers the adviser the chance to build a long-lasting relationship with the client, boosting the chances of them coming back to the adviser for their other financial needs, from mortgages to protection.
