Thinking about the amount of money you need to retire can be daunting, but it’s important to have a savings target in mind to fit your desired lifestyle in retirement, that you can work towards. Analysis of government figures taken from the Pensioner Income Survey highlights that the average retired UK couple has a pension income worth £284 per week, made up of both occupational and private pension income and excluding State Pension income.

For those approaching retirement who have a similar weekly income target in mind, to buy a ‘level’ annuity which would guarantee this income for life, but might not maintain purchasing power for future years, they would need to have amassed £267,000 in retirement savings.

Income for Life

Meanwhile, the top fifth of pensioner couples have pension incomes of £704 per week, requiring a savings pot of £660,000 to secure the same type of annuity and guarantee their income for life. To buy an ‘index-linked’ annuity, which increases income in line with inflation, the required pot is considerably larger. However, this provides an income that is more likely to keep up with cost increases.

The analysis comes as annuity rates are, however, rising. Rates are estimated to have improved by 25% since the start of the year, meaning that savers can generate larger incomes from their savings, according to research from Standard Life.

Inflationary Environment

The analysis also found that over the last ten years, the average income of retired couples has increased by around 7% in real terms, with the richest fifth increasing by 4%, compared to 7% for

the least well-off pensioners. It is encouraging that over the past ten years pensioners’ incomes have increased in real terms.

However, in the current environment with inflation having recently reached double figures, there is an increased challenge of making your money last. So, even while we are in a challenging situation that can lead to a focus purely on short-term finances, if you’re able to continue paying attention to your long-term pension savings, it will be extremely worthwhile by the time you come to retire.

How to make your savings work harder during this inflationary period

Revisit your financial goals

As you start to notice the effects of increased prices, you might find that your current financial goals could take longer to reach than originally planned, or they might need to be adjusted. So now could be a prime time to revisit your plans and speak to an Adviser to see if they need to change.

Prioritise your spending

It’s worth seeing if you can put off purchases you’d planned for a while longer. If it’s not essential, you might be better waiting until you’re confident that making that purchase now won’t impact your standard of living. However, if you’ve been thinking about making a big purchase, such as a car or a required home improvement, and you have the money to do so, you might find you’d be better off going ahead now rather than waiting until later when prices could be even higher and the pound in your pocket is worth less, saving you money in the long run.

Try to clear any outstanding debt

When inflation rises, interest rates are generally increased to help control the economy. If you have any variable rate debt, you might find that your regular payments go up as a result. So, it’s best to review debt arrangements as a priority, making sure you are reducing interest being paid as much as possible.

Make the most of tax-efficient savings and consider making investments

It’s worth bearing in mind that you receive tax benefits on pension payments, effectively meaning it costs less to save more into a pension plan. So even if you’re focused on short-term finances at the moment, it’s important to continue contributing to your pension: time in market is one of the most important factors in investing, and if you choose to stop contributing you could miss out on valuable contributions from your employer.

Remember that you can’t access your pension savings until you’re aged 55 (rising to 57 in 2028 unless you already have a plan with a protected pension age). If you want to access your money before age 55, while giving your savings the opportunity to grow in line with inflation (and, importantly, stand a chance of beating it), it’s advisable to invest over the medium to long term, which is generally five years or more.

Stocks & Shares ISAs are a tax-efficient way to save for medium or long-term goals without having to tie up your money. Or you could consider a Cash ISA for shorter-term goals – but, of course, be mindful of the impact of inflation on the value of these.

Talk to us

Pensions can be an effective way of saving for the future – both for yourself and your loved ones. An IFA can review your existing investments and help you to find the most tax-efficient saving options going forward. This will allow you to plan for your retirement alongside the current inflationary pressures. Please contact us and talk to one of our advisers about how we can help you.

PLEASE NOTE: Grosvenor Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority. The value of investment can go down as well as up and you may not get back the original amount you invested. Tax treatment is dependent on individual circumstances and may be subject to change. Tax planning is not regulated by the Financial Conduct Authority.