Over the last year we have seen the war in Ukraine, the cost-of-living crisis deepen and raging inflation. RBC Brewin Dolphin has created a pension barometer to analyse how much we need in our pension pots to retire and how much people should be saving to achieve a comfortable retirement, and how much it has changed.

According to wealth manager RBC Brewin Dolphin, in March 2022, a 67-year-old retiree with a full state pension, needed a pension pot of just over £540,0001 to provide them with a comfortable retirement income. This March they needed a pot of £630,000.

With inflation so high, it’s not surprising that the cost of a ‘comfortable’ annual retirement income has risen 11% from £33,600 to £37,300.

What do Welsh pension savers think?

RBC Brewin Dolphin surveyed[3] 3,000 Britons about their retirement and found that:

• Over two-thirds (68%) of people in Wales don’t think they have enough in their pension pots to retire
• On average people in Wales think they need £540,000 in their pensions to retire and think they need an annual income of £38,000 for a comfortable retirement
• 69% have not taken financial advice

Greg Tait, financial planner at RBC Brewin Dolphin’s Cardiff office warned:

“For those approaching retirement they need to be aware that if their pension saving remains at 2022 levels they could run out of money earlier if they maintain a 2023 level of income of £37,300, due to the increase in inflation. In this example, the £540,000 pot could run out 7 years earlier. It can be overwhelming trying to save adequately for retirement but starting as early as possible really helps, investing for the long term gives your money the greatest chance of growing in value.”

How do you build this pension fund?

Greg said:

 “Retirement might seem a long way off but starting to save earlier means you will benefit from compounding returns; earning returns on your returns.”

A 40-year-old with a pension pot of £120,000 today would need to put approximately £980  per month into their pension to retire with a £630,000 pot if we assume a 4% growth and 2% inflation. However, if we assume a 5% growth after charges, in the RBC Brewin Dolphin balanced portfolio you would need to put approximately £720 per month; which shows the power of compounded long-term returns.

A 50-year-old with a pension pot of £180,000 would need to put approximately £1,5004 per month into their pension to retire with a pot of £630,000 if we assume a 4% growth and 2% inflation. However, if we assume a 5% growth after charges, in the RBC Brewin Dolphin balanced portfolio you would need to put approximately £1,200 per month.

How do I work out how much I need for my comfortable retirement?

Greg said:

“What constitutes a comfortable retirement is highly subjective. For some an annual income of £37,300 will be plenty, but for others it won’t cover all their expenses. Only by running through your expenditure and lifestyle goals will you be able to get a clear picture. This is where a financial advisor can work with you to decipher what comfortable means for you.”

Greg Tait said:

“Worryingly 68% of people in Wales don’t think they have enough in their pension pot to retire. Whilst lots of people might feel like their pension saving is not on track, there is still time and it’s worth bearing in mind that income in retirement can come from other sources, not just your pension. So, if your pension pot is not as big as it needs to be, you might be able to supplement your income with other savings and investments including any cash savings, ISAs or property for example.”

“Our findings indicate that only just over half of people in Wales (54%) have reviewed their pension in the last year and over 44% of those in the crucial years (aged 45 to 54) haven’t, so you may believe your pension is on track but sometimes even the best laid plans can hit a bump in the road. Regularly reviewing your pensions and investments, as well as the income that can be taken from them in retirement is essential as the earlier you can make changes the more manageable they are likely to have to be.”

Greg concluded: 

“The combination of stock market volatility and rising inflation makes this a particularly challenging time for those coming up to retirement. The only way to truly understand the impact of market downturns and inflation on your retirement.”

[1] Pension pot calculated using RBC Brewin Dolphin portfolio risk category 6, with an average return of 5%, after charges, over 33 years.

[2] Net income according to the Pension and Lifetime Savings Association (PLSA)

[3] Find Out Now surveyed GB adults from 25/01/2023 to 26/01/2023. The sample consists of more than 3,000 respondents with more than £50,000 annual household income. Find Out Now is a member of the Market Research Society (MRS) and the British Polling Council.

[4] The average pension pot for those aged 35-44 is £129,000 according to the Find Out Now survey.

[5] Based on gross personal contributions.

[6] The average pension pot for those aged 45-54 is £190,000 according to the Find Out Now survey.