Young pension savers expect to ‘need £100,000 plus a year’ for a good retirement

Young people have high hopes for the lifestyle they want to afford in their later years – with some saying they’ll need more than twice the recognised amount needed for a comfortable retirement.

More than a fifth (22%) of 18-34 year olds expect to need £100,000 plus a year to have a good standard of living in retirement, according to research by pension provider Royal London – and they want to achieve this by age 59.

Meanwhile, those closer to retirement (aged 50-69) appear more conservative, with only 3% expecting to need the same amount for a good standard of living.

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Overall more than one in eight people (13%) believe they would personally need £100,000+ per year to live well in a solo retirement.

Shall we tweak this to: The industry body Pensions UK’s Retirement Living Standards estimates a person living alone will need £43,900 in retirement income a year for a comfortable retirement. However, this doesn’t include housing costs and assumes that tax has been paid on income.

Clare Moffat, pension and tax expert at Royal London said: “It’s clear that younger adults think they’ll need significantly higher income when they’ve finished work than those closer to retiring. This could be driven by their cost of living and inflation expectations, and also because young people face greater housing uncertainty than those before them.”

The research lands ahead of what is expected to be a tax-raising Budget, with heightened speculation about reforms that could change the course for long-term savers.  

While the Treasury appears to have ruled out cutting the amount of tax-free pension cash retirees can take, it is rumoured to intend to reduce the generosity of salary sacrifice pension schemes instead.

Pensions to cover housing costs?

Younger adults are expecting higher expenses in retirement, fuelled by a surge in housing costs. A higher proportion of young people believe they will still be paying rent or a mortgage once they have retired, compared to other age groups, pointing to financial priorities by age.

Nearly half (48%) of younger adults aged 18-34 expect to still be paying rent or a mortgage in retirement. This compared to just one in three (33%) of those nearing retirement aged 50-69.

Despite believing they’ll need a large pension to pay for higher costs in later life, younger adults also intend to retire earlier, on average planning to retire at 59 years old, putting added pressure on them to save enough to meet their target.

Moffat said: “With such a wide gap in generational expectations, it’s easy to suggest pension expectations are overblown, but for a generation that’s experienced multiple economic downturns and high inflation, many will be concerned for their future quality of life.

“Many younger adults are questioning whether their state pension and personal savings will be sufficient to meet their future needs, and they have to balance current costs against future pension expectations. Breaking down barriers to guidance and advice, especially in relation to cost and trust, will be essential to tackling generational divides.”

We look at financial priorities by age in a separate article.

Gender pension gap

Men and women differ in how much they think they’ll need in retirement across all age groups, according to the research. Men expect to need between 18% and 30% more than women for a good standard of living, depending on their age group.

Among younger adults (aged 18-34), on average, men reckon they will need around £81,300 a year, while women think they will need around £69,000.

This disparity continues across age groups, with mid-life men (aged 35-49) expecting to require £64,000 versus £49,400 for women. Men approaching retirement (aged 50-69) expect they will need £38,900 a year compared to £31,800 for women of the same age group.

Moffat said: “Lower expected retirement income among women may reflect concerns around pension adequacy, shaped by earnings gaps and time out of the workforce. This is an issue that will be looked at by the recently formed Pensions Commission.

“Women may also take a more cautious view of retirement needs, influenced by greater cost of living pressures. Whatever the cause, the disparity highlights the need to address some of the specific challenges women face when planning for retirement.”

Separate research out this week found women face a gender pension gap of £113,000 in total private pension savings, with career breaks pushing one in three women into pension poverty.

This is the finding of Scottish Widows’ 21st edition of its annual Women and Retirement Report, which looks at pensions and the issues which typically affect women when creating a decent retirement nest egg.

Last year, the insurer said the gender pension gap was £100,000, and warned that it would take 20 years to fix unless “decisive action was taken”.