A curate’s egg for pensions

Good news and bad for pension savers. The size of the average pension fund in the UK has risen considerably, but many people will be disappointed by the income that their pot can secure.

Good news and bad for pension savers. The size of the average pension fund in the UK has risen considerably since the introduction of auto-enrolment (whereby employees are automatically signed up for their company pension scheme), according to pension provider Aegon. But most people still aren't on target to achieve the income they hope for in their retirement years. The average pension pot in the UK is now £49,988, according to Aegon, up from £28,766 in April 2015. This rise is partly a result of pension auto-enrolment, but the introduction of the pension freedom reforms has also boosted people's confidence in retirement saving, said Aegeon.

However, while the increased savings will be welcomed, many people will be disappointed by the income that their pot can secure. Right now, the average £50,000 pension fund would be enough to buy an annual annuity of just £2,500 a year, taking the income of someone entitled to a full state pension to around £10,800. By contrast, the average person hopes to achieve an annual retirement income of around £33,300. While that figure may be unrealistic, savers should aim to generate a retirement income worth around 60% of their pre-retirement income. With average earnings now around £28,000, that would suggest a target of £16,600 requiring a private pension income of £8,000-odd on top of state benefits.

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David Prosser
Business Columnist

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.