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The Actuary The magazine of the Institute & Faculty of Actuaries

Quarter of salaries must be saved for retirement, IFoA finds

UK savers must set aside a quarter of their earnings if they want to look forward to a ‘moderate’ level of retirement income, the Institute and Faculty of Actuaries (IFoA) has said today.

Population is under-saving ©iStock

Through actuarial modelling, it calculates that someone on an average full-time salary would need to save £799 a month over their entire working life to reach a moderate income.

However, an individual looking for a ‘comfortable’ retirement – as defined by the Pensions and Lifetime Savings Association (PLSA) – would need to save more than double this amount.

"We appreciate that these savings goals are high, and to many, they will appear daunting," said Mark Williams, IFoA pensions board chair. "But as actuaries, it is our role to ‘do the maths’.

"We believe that it is in the public interest to demonstrate the potential scale of under-saving, and the impact it could have on people’s retirement prospects."

The findings are published in a new report, which warns that the state pension and current automatic enrolment contributions only provide a ‘minimum’ retirement income on average.

Putting aside £86 per month, these savers would be able to holiday in the UK, eat out around once a month, and enjoy some affordable leisure activities twice a week, according to the PLSA.

A moderate lifestyle would enable a foreign holiday once a year and eating out a few times a month, while a comfortable one allows for two holidays, regular beauty treatments, and a subscription to a streaming service.

However, the report highlights YouGov polling from July that found that 70% of people using workplace pensions as their main form of retirement saving only make minimum contributions.

“Savers should not be left to navigate this alone," Williams said. "There is a shared responsibility between individuals, employers, the pensions industry and the government.

"Our report provides recommendations for each of these groups. We urge the government to assess the current balance between the levels of employee and employer contribution. 

"Individuals alone should not be burdened with the responsibility of closing what could become a significant savings gap unless there is further policy reform.”

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