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Can young people really afford to save 15% of their wages?

We've calculated just how much the average worker would have left in their pocket if they saved the recommended 15% of their salary into a pension.


by Michelle McGagh on Mar 08, 2016 at 14:21

Can young people really afford to save 15% of their wages?

Workers have been told they should be putting 15% of their salary into a pension but if you’re earning an average wage of £26,000, is there enough to save?

A Labour party-commissioned report, the Independent Review of Retirement Income, has told workers they need to save 15% of their salary if they stand a chance of retiring with a decent pension.

The author of the report, Pension Institute director David Blake, has even called for a 15% ‘national savings target’ to be set by the government to encourage people to make adequate preparation for their retirement.

While it’s fine to talk about a 15% target in principle, the reality of implementation may be far more difficult. The fact is, with rising rents and house prices, as well as utility bills that creep skywards, many people cannot afford to save this much.

While keeping in mind that averages aren’t a perfect science, we’ve examined just how much the average worker would have left in their pocket if they saved 15% of their £26,000 into a pension. Spoiler: it isn’t a lot.

Starting point: £26,000 a year, or £2,166.67 per month before tax.

Let’s assume our worker has a big chunk of student debt hanging over them and of course, there’s the 15% contribution into the workplace pension.

Blake doesn’t envisage the worker paying in the whole 15% - equal to £325 a month. At the moment, auto-enrolment contributions are set to rise to 8% in 2017, made up of 4% employer contribution, 3% employee contribution and 1% tax relief from the government.

Blake said ‘there could be employer resistance to doubling their [contribution] rate’ and that the 15% would be made up of 8% employee contribution, 5% employer contribution and 2% tax relief.

An 8% employee contribution would be equal to £173.33.

And for a person earning £26,000, student loan payments would be £68.

After paying tax, student loan and pension contributions our worker would be left with £1,523.77 a month to live on (thanks to Listen to Taxman’s online calculators).

Cost of living

Now we know the amount the average worker has to play with, let’s see how much it costs them to live.


You need a roof over your head and we’ll assume our worker is renting. According to landlord agency HomeLet, the average rent in the UK is £739 a month.


Our worker needs to get to work and weekly commuting costs, according to the Office of National Statistics spending report, totals £15.30 a week on average across the UK. Four weeks x £15.30 equals £61.20 a month.

Gas and electricity

If your bills aren’t included in your rent then you’ll have to pay for your own gas and electricity. According to Ovo Energy, the average energy bill for a small house or flat equals £784 a year, so £65.30 a month.


Another essential utility is water and uSwitch estimates the average water bill totals £393 a year in the UK, or £32.75 a month.

Council tax

There is little information on average council tax paid in the UK. However, the Department for Communities and Local Government’s figures show the average cost of council tax for Band D properties in the UK is £1,484 a year. Split over 12 months, the cost is £123.66 per month.

TV licence

Most people have a television and will therefore need a licence. In fact, if you don’t have a TV but watch BBC iPlayer’s catch-up service, you’ll still need a licence thanks to a closing down of a loophole.

This adds another £12.12 to your bills each month.


There are few people who do not have a mobile phone these days and it’s likely that you’ll have not just a phone but a data package included in your contract. According to Ofcom, the telecoms regulator, the average monthly cost of a mobile phone and data package is £44.37.


The prime minister last year said that fast broadband was to become a legal right for everyone in Britain, so let’s add that into our worker’s costs. Figures from Ofcom show the average person pays £13.44 a month for broadband.

The cost of living for our very average person totals: £1091.84.


But let’s not assume our worker wants to rent forever and that they have aspirations to be a first-time buyer. In that case they would be wise to set up a Help to Buy ISA (individual savings account), as the government will contribute £50 for every £200 a month that you save.

Total savings per month: £200.

How much is left?

Let’s remind ourselves how much the average worker had left after tax, pension contribution and student loan had been paid: £1.523.77.

Now let’s minus the average cost of covering the basics (£1091.84), which leaves our worker with: £431.93.

And because they want to own their own home at some point, we’ll take away their deposit cash (£200): £231.93.

This means our worker has to make the remaining £231.93 stretch to cover food, going out, presents, holidays, and hobbies.

While saving 15% of salary for retirement is the right thing to do, the fact is the average person may not be able to make their money reach that far, especially when more pressing, current needs – like purchasing a property – are weighing on their minds.

In fact, for some it may come down to making the choice between a property or pension. For Dan Wilson Craw of the Generation Rent campaign group, the figures are proof of the need to fix the housing crisis in the UK, which means young people cannot afford to have it all.

‘Young people are being pulled in all directions - not only do they have to save more to buy a house, they have to put away more for a pension,’ he said.

‘At the same time they're paying so much on rent some can't even save anything at the end of the month. Policymakers need to accept that if they want to make the pensions system sustainable, they have to fix the housing crisis.’

8 comments so far. Why not have your say?

In the Dark

Mar 09, 2016 at 09:05

It is the price you have to pay for being in an over taxed and regulated society but you would not want it any other way, would you?

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Mar 09, 2016 at 11:48

Plus smart work clothes, work lunches etc. Plus 'capital' outlays for PC, tv and home furnishing costs ( even with IKEA's cheapest). Useful to learn how to gatecrash events where food is served and to spend evenings watching to in bed.

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Mar 09, 2016 at 15:58

This just goes to show that younger people should not be saving for a pension but should be saving to buy a house, once they have their own property at least they're not paying rent to somebody else even if it doesn't reduce their outlays each month.

Oh and by the way, I assume that the "experts" will soon be suggesting that we should all be saving more because the only reason to save "only" 15% is because the effect of "compounding" turns that money into "lots more" over 40 years. The problem is that neither the Markets nor Housing (outside the South East) is generating anything like the 4-5% that the experts assume so compounding has less effect.

Buy a house, bring up your children, save for your pension later in life.

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In the Dark

Mar 09, 2016 at 20:15

So, the Labour party commisiioned the report. I wish they had commissioned a similar report before they wrecked my pension and the economy.

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Mar 12, 2016 at 09:31

Of course, unless I am missing something, the picture changes somewhat if there is more than one ıncome to be taken ınto account....partner workıng, shared accomodatıon to splıt the rent etc. Only one TV, Broadband, perhaps even mobıle....all considered luxuries when I was starting out. It would also be ınterestıng to know what percentage of average earners actually have a student loan to pay off.....

I believe that the Minister of Pensions, Baroness Altmann, has already dıscredıted the Blake Report.

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Peter T

Mar 12, 2016 at 17:33

Whatever a young person can save into a pension fund at the present time, be assured that what they are promised when achieving their retirement age, can and most probably will not be as expected. Government 'do' change the rules as and when they wish, and rest assured, in 30, 40 or so years time it will be meaningless to take on board, anything promised at the present time. The collusion between government and financial institutions??

'Government bails out the banks' or Banks loan money to the Government' (already short of money to pay the public wage bill?) What really is the truth? or maybe I am 'thick'? ...(do not reply!) As a 68 year old, not getting as promised, the pension I expected, I must admit I do not do that badly. I only hope that those, in the 'private sector' in the distant future, are not 'cheated' as some of my fellow retirees are now. So, pay into your pension funds now, that is important, and if you are not happy, at the end of the day...make hell for whoever are truly 'ripping you off, because I am sure you will be disappointed.

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Peter T

Mar 12, 2016 at 18:50

Let us look at a scenerio!... A supermarket employs Polish (or other ethnic) workers, they find accommodation for these workers, these workers pay rent...but the supermarket owns the rented properties! I have no problem with that particulate scenario.

The Government tells us that we are all living longer, they must compensate with the state pension, obviously the insurance companies must also look after their interests and profits, therefore! let them increase pension payment ages!

At present time, elderly people dying now are either, leaving their offspring with substantial amounts from the value of their properties, and assets, or are leaving what is left after care in a care home institution. These institutions are ripping the 'in mates' off with exhorbitant care home fees, (by the by, the employees earn a pittance). It doesn't take much intelligence to realise that financial institiutions, plus government 'public servants' have financial interest's in these establishments, I am all for it! but for those others, do not be mislead!

Someone is gaining from your loss!

Higgiddy pie and Tesco promotion!!! Thank God for Martin Lewis!

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Mar 15, 2016 at 12:27

Nobody in their right mind, particularly those with a student education behind them, would pay the average rent of £739 p.m. plus £123 council tax for a property they are occupying on their own. RobtheFox hit the nail on the head about shared accommodation & the need to cut out luxuries.

£44 p.m. for a mobile contract - get a grip those paying that amount & more ! Ever heard of PAYG?

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