Millennial Pension – Do I Need At Least £1million?Written on June 21, 2017 by Kirk Rice LLP
The Question:
I read an article which suggested people like me (Millennials, born 1980 to 1995) will need at least £1million in their pensions. Is that really the value a millennial pension will need to be?
Kirk Rice LLP answers:
Much research and media content has drawn attention to the prospect that many people in this age group will never retire. It’s my experience that all age groups expect to work later in life than they originally intended in order to maintain their lifestyle. But the question here is whether a millennial pension pot needs to be at least £1million.
The Government’s recent pension changes, giving more flexibility to those who have saved, but restrictions on contribution levels, severely limits the ability of new savers to match what their parents and grandparents may have achieved. A Lifetime Allowance limit of £1million means if you are fortunate and accumulate more than this there will be an additional 25% income tax to pay as you withdraw your pension savings.
Let’s consider the historical context. In 1980 annuity rates were typically 15% for people at age 65. If you had £100,000 in a pension then you might have had an income of around £15,000pa. At that time price inflation was above 15%pa so the value of the income was reduced year after year.
Annuity rates today for people at age 67 (the current age many people say they expect to retire at) are typically around 4% which means income would be just £4,000 pa. However, inflation has increased at less than 3% pa, so the value of any fixed income is less affected than back in 1980s.
Therefore, it is impossible to make very long term savings decisions with any certainty about what you may be able to expect in say 20 years’ time. One certainty is that the law and tax situation will change greatly over the next 20 years, which will alter the outcome for you too.
Sound financial planning would be to save whatever you can afford and regularly review that it is attaining the best return and invested in a way that you are comfortable with. There are multiple routes to invest available now compared with 1980s and information about these is easy to find. You can combine ISA and Pension savings, neither of which were available in 1980.
Financial Advisers have many different planning tools and investment propositions that they will use to help you achieve your goals. An adviser could work with you from the start or engage with you at any time during your career or savings period to ascertain if there are other opportunities you could benefit from.
We hope that this blog has been helpful in your query relating to a millennial pension but any reader interested in discussing this topic further can telephone Michael Powell on 01344 875000 or email info@kirkrice.co.uk
If you would like to receive Money Matters electronically, simply email info@kirkrice.co.uk stating Money Matters in the subject heading and we will add you to the distribution list.
Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The FCA does not regulate tax and trust advice.
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