Retirees need £15,000 a year to be comfortable
People in retirement need around £15,000 a year to feel comfortable, according to research from the automatic enrolment scheme NEST (National Employment Savings Trust).
It found that pensioners living on £15,000-£20,000 had a significantly higher quality of life compared to those living on less, who routinely struggle to pay household bills.
The good news is that younger workers who are automatically enrolled into a workplace pension should "get most of the way" to a pension pot that would produce an income of at least £15,000.
The flat-rate State Pension is due to pay around £144 a week when it is introduced in April 2016 - equivalent to £7,488 - but NEST said a worker who starts saving at 22 should be able to double that amount by the time they reach retirement age, even if they only put in the minimum level of contributions.
The report also found that pensioners' overall satisfaction with life increases by an average of 7% for every extra £5,000 of annual household income they have; while 43% of pensioners living on a household income of £15,000-£20,000 say they are financially comfortable, compared to just 24% of those living on less than £15,000.
Moreover, a third of people living on less than £15,000 find it difficult to afford their household energy bills and a quarter find it difficult to afford groceries.
Tim Jones, chief executive of NEST, said: "Retirement is now more likely to be a gradual shift than a one-time 'cliff edge' event. Many people will have more time to save up and the latest reforms to pensions mean there's more choice than ever for accessing retirement savings during later life.
"Our findings underline the message that tomorrow is worth saving for. However people access their retirement savings in future, our research suggests most people will want around £15,000 a year to live comfortably.
"A workplace pension is just one tool in the savings box, but, along with a triple locked flat rate state pension, our report shows it can provide a vital foundation to build on. Being able to afford a few extras can make a significant difference in later life.
"Saving for later life is something we all know we should be doing but it can easily slip to the bottom of the priority list. With automatic enrolment most workers will be given a helping hand to get started and, with employers topping up workers' pots, it will go a long way to improving quality of life in retirement."
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.