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Want to retire on £25K a year? You need to save £1,000 a month

Most people think £25,000 a year is a reasonable retirement income but underestimate the amount they need to save in order to achieve it.


by Michelle McGagh on Jun 06, 2013 at 14:41

Want to retire on £25K a year? You need to save £1,000 a month

If you’re the average person you expect to retire at 66 with a pension income of £25,000 a year, according to a new report. But have you saved the £1,000 a month since age 30 to make that fantasy a reality?

The Scottish Widows Pension Report is a stark reminder of the mismatch between our expectations and reality.

Taking into account the state pension of £144-a-week (under the new single-tier state pension rules), an individual would have to save £1,000 a month from the age of 30 to 66 in order to top up their state pension to £25,000 a year, or £2,100 a month.

Unfortunately, low annuity rates – which convert our savings into a pension – and the fact we're generally living longer means we will need to save a lot more to hit that magical number.

Ian Naismith of Scottish Widows, the pension provider owned by Lloyds Banking Group, said: ‘We need to get people to be more realistic about their pension.'

What are you saving?

According to Scottish Widows the average person saves just over 9% of their salary each year. Although this is an increase on 8.9% last year it is still below the 12% the firm believes is adequate. It reckons only 45% of people save enough, the lowest amount it has seen.

Typically, people pay around £190 a month into a pension although those who have recently been 'auto-enrolled' by the government into a company pension scheme are saving just £130 a month on average.

Naismith said a rule of thumb for how much you should save is to ‘take your current income and know the last two digits off and that’s the amount you should pay into your pension each month’.

So, if you earn £25,000 a year you should be paying £250 into your pension each month.

What you want to avoid

Research by the International Longevity Centre (ILC) and Age UK highlights the problem of failing to save adequately for retirement. Three in 10, a total of 1.1 million, of older people who are in debt are considered to have problem loans which they are struggling to repay.

Although older people are portrayed as wealthy, many are asset rich and cash poor and are forced into debt to pay for emergencies which their incomes do not cover.

‘Debt is worsening, particularly among older people,’ said Dylan Kneale, head of research at the ILC. The number of people of all age groups with problem debt is decreasing but those with problem debt owe more.

In the 55 to 64 age group, the median amount of unsecured debt held in 2002 was £750 but it had risen to £2,000 by 2010.

How to save more

There are three levers you can pull in order to save more for your old age; start saving early, increase your contributions, or retire later.

If you start saving at age 20 instead of age 30 you can increase your retirement income by 39%, and at the other end of the spectrum if you defer your retirement from 65 to 70 you can achieve a 43% increase in income.

Naismith said deferring retirement may be something people have to do as the government increases the state pension age.

‘The "age of anger" – the age at which people would be angry to still be working – is 66.5 years old and it has not moved over the last few years,’ said Naismith. ‘I do not know what state pension age changes will have to that number.’

By far the biggest impact on retirement income is increasing contributions. If you increase how much you save by 3% every five years you could add 68% to your income.

32 comments so far. Why not have your say?

Rob Walker

Jun 06, 2013 at 15:56

It's not the 'Age of Anger' it's the 'Time of greed' when, stupidly, people carry on working, egged-on by the pensions industry, so they can retire on a little bit extra (less 20% income tax). How many people say on their death bed "I wish I'd worked longer for a better pension" ???

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Jun 06, 2013 at 16:39

it should be illegal to sell someone an annuity at less than 5% nominal since anything below 5% means you are not even getting your money back if you live for twenty years in retirement (100% divided by 20 years = 5% per annum of initial accumulated retirement capital, not a diminsihing 5%).

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mark cromack

Jun 06, 2013 at 16:55

I believe this article is flawed and contradicts itself. in one part you say you need to save £1,000.00 per month for 36 years, which is a total investment over that term of £432,000.00. If you add a reasonable growth rate onto that money the eventual fund would be very large. You would have to factor in the effects of inflation, but assuming that your money could grow at a rate in excess of inflation, which should not be too difficult over that period of time, then I do not understand your figures.

Further on in the article Mr scottish widows says that you should pay 12% of your salary. so on this basis you would need to be earning £100,000 to pay 12% of your salary in, which equates to a pension contribution of £1,000 per month or £12,000 per year. I think that you really should go into a lot more detail if you are going to put this type of information on your site.

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Jun 06, 2013 at 17:05

well said Mark.

it's still a rule of thumb that every 1,000 you save buys 1 pound a week.

you want 500 a week, you need to have saved 500,000

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Tony Peterson

Jun 06, 2013 at 17:09

The article is dangerous and disingenuous rubbish.

I never saved 1K a month when in work. But my retirement income is far far in excess of anything I ever earned when in work. And not the peanuts of 25K either.

The "trick" is to stay well clear of anything advised by the stinking, corrupted, "financial services industry". Throw away the Monopoly and see what you can do with your rusty old Meccano set.

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Dennis .

Jun 06, 2013 at 18:53

hooligan I think you need to look up exactly how compound interest works.

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Jun 06, 2013 at 19:28 mean as in (1 + i) ^ n, then take the n th root to get back to i? heh, i have spent more time in compounds than i cared to.

my use of tenses though, needs work...i should have said...

for every pound you HAVE saved..


for every pound you save

my bad and thank you for point that out :)

the premise 100,000 as a final pot (earning compound interest to get there) and it will buy an annuity of around 5% equal to 5,000 a year or 100 pounds a week

hence a 1,000 pound gets you one pound a week, once you buy an annuity

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Jun 06, 2013 at 23:15

Dennis - inflation is compound too !! If the return on your fund equals inflation then you are back to where you started.

With a continuing balance of payments deficit, government spending deficit and huge government exposure to any rise in interest rates, Sterling is bound to fall steadily against average world currencies and with QE as well we are very exposed to high inflation - especially as it is an easy way for a government to get out of debt as Margaret Thatcher found out. My father's fixed annuity was worth only 25% over 20 years compared with what it was when he retired.

One failure of this article is that it does not state whether the pension is index linked or not. At present your need over £37k for each £1k of index linked pension so for £18k to top up the £7k pension you need a pot of around £650k. If the return on your fund equals inflation then from 30 to 65 yrs you need to save £19k pa.

Good funds might beat even high inflation, but many pension funds have not kept up with it over the past 10 years. Of course they continue to suffer from the annual Brown tax, were crippled by the banking crisis (which effectively saw a net transfer of wealth from bank shareholders to the Treasury) and now low interest rates which, again, represent a hidden transfer of wealth from investors to borrowers and the Treasury.

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Jun 07, 2013 at 10:04

The sources for this article have an interest in getting you to hand over to them as much of your money as possible.

Their figures are apparently based on the assumption that annuity rates in 30 years' time will be the same as today - whereas in fact we are in a time of historically low interest rates and very low annuity rates. The current very low rates are highly convenient for pension providers to make advertising arguments or 'surveys' showing how much more money you 'need' to hand over to them.

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Tony Peterson

Jun 07, 2013 at 10:43

Well said, Mr Micawber!

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Paul Eden

Jun 07, 2013 at 14:06

I believe the Government is only too happy to have such very low annuity returns. So it won't make a 5% return on new annuities mandatory - or returns below this level illegal. If it did, could it ever afford to manage the National Debt?

The question being asked in some quarters now is when interest rates do rise to more normal levels, is the Government going to be able to manage the National Debt then?

Gordon Brown & Tony Blair are quite rightly derided for taxing pensions (and so cunningly - being careful not to let the electorate know what they were about before the 1997 election) but no Government since has stopped taxing pensions. Neither are they likely to do so. So all present & future politicians are or will be complicit in Brown's act - unless they stop taxing pensions.

I don't believe any body can accurately predict rates of future returns because there are so many variables. Perhaps you could call it 'informed guessing'. Maybe. But this problem highlights the short-sightedness of past politicians for whom pensions, contributions to pensions and pension retirement ages, were seemingly unimportant.

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Jun 07, 2013 at 15:38

the 5% annuity return has nothing to with gilt yields or the law. it is the hurdle which annuity companies have to pay over, assuming that you live for 20 years in retirement and take 5% of the amount of your accumulated pot when you start retirement.

it is true that ten year gilts are yielding only 2%, but that is in addition to the 5%.

the only way that the annuity rate can go below 5% is if you expect most people to live more than 20 years in retirement.

if you retire at 67, 20 years takes you to death at 87.

if you retire at 67, 25 years takes you to death at 92.

the equal draw down rate for 25 years is 100%/25 years = 4%.

and that's with earning nothing on your undrawn capital for 25 years!

when the annuity rate goes below a nominal 5% when you expect to live 20 years in retirement, you should NOT buy an annuity, unless you think your bank is going to fail or the central banks start paying negative interest (i.e. the central banks throw off their bullshit mantle and acknowledge they are a tax agent of the government).

when you introduce inflation adjusted annuities, the annuity providers might offer something of value. inflation adjusted annuity rates of 3.5% plus inflation (2.5% RPI or 2% CPI) make a lot more sense.

good luck with finding one

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Michael Hellman

Jun 07, 2013 at 21:08

Makes me think you would be better off NOT saving into a pension but put your £1k per month into an isa.

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Alan via mobile

Jun 09, 2013 at 09:23

Over the time I have subscribed to receive the Citywire newsletter I have not been impressed with their comments or reasoning. I will not say "I'm Out" just yet because I enjoy the thoughtful and well reasoned replies to often poorly written articles.

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peter hart

Jun 09, 2013 at 10:31

No one in their right mind would trust the financial institutions. Equitable Life was in the year 2000 and then the banks et al. A pin is a better bet.

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Dislexic Landlord

Jun 09, 2013 at 11:33

How can you trust any of this rubbish

when I hear a story and spin I always look at who is telling you the Story ?????

Scottish Widows (Who I may add have a pension of mine ) would Scottish widows really say anything else ????? its just a way of them makeing money and thats what there in bussiness for

Any good salesman sells there pots and pans in the same way ???

My son is 29 he is self employed and is a basic rate tax payer I would never recommend a Personal Pension to him if he were a 40% tax payer I might think about it

ISA stocks and shares is a far better way to go but its strange indeed Scotish widows make no mention of this ????


the consumer is sold on the beniftis you get tax back and its tax free growth its ingenaral a red herring

Look at other alternitives Like BTL it makes so much sence especialy when your middle aged

BTL is not the easiest way to make money but when you get it right you can live life on your own terms

I leave you with one thought

Ask your Bank to lend you money to put in a pension or Stocks and shares the answer will be NO ???

ASk the same bank to lend money to buy a house and the answer will be yes

Just ask yourself the quiestion Why will they lend to buy a house ????

Im not going to insut anyones inteligance on that one

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Jun 09, 2013 at 14:01

Once, in a book on science, I read the following advice, which I have never forgotten : Whenever you hear some one arguing a case, ask your self: who is saying it, why is he saying it, has he got anything to gain by saying it.

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Jun 09, 2013 at 14:14

Dear, naive readers, Please do not take what you read in Citywire so seriously. It is only an advertising medium, all its articles are concealed advertisements and the pension providers are its biggest customers. You are the sheep to be sheared.

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Tony Peterson

Jun 09, 2013 at 14:19


That's a nice corollary to Descartes' principle of doubt.

I think it a sad fact of human existence that we are misinformed by others (not always intentionally) more than we are informed by them.

I estimate myself that religious leaders, politicians, and financial service providers are misleading us around 99% of the time. Journalists, teachers, and friends probably get closer to 50%.

At least most of those commenting on this thread seem well aware of the importance of constructive scepticism.

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David Rowse

Jun 09, 2013 at 16:02

It has already been mentioned that pensions are classified as 'income' and not 'benefit' and are therefore taxable.

Anyone on a pensionable income of £25,000 will be liable for income tax at the standard rate, which will reduce that sum by several thousand pounds. I believe that at this rate of income a pensioner would not be eligible for any further support from the government, other than Winter Fuel Allowance and a Free Bus Pass, plus free prescriptions? The income tax you pay will probably cover these benefits several times over, unless you are very ill.

If you have more than one pension you will be required to make a tax return to the Inland Revenue on an annual basis. This is an annual 'chore'.

If you have very little income on retirement you will be eligible for 'benefits' that are not taxable and therefore do not need to be declared.

ISAs make much more sense than saving to pay more tax.

Or have I got this wrong?.

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Tony Peterson

Jun 09, 2013 at 16:25

No, David, you have it absolutely right.

And I can easily find amongst my peer group those on no more than the SRP but with dividend income that takes their income to 40K outside of ISAs, and before tax free capital gains. These have no further liability to income tax beyond the tax credit on their dividends. They could easily reach (including ISA income) 100K a year and have no tax liability. And get the perks too.

On the other hand those that took the tax bribe and now have their main income in the form of (crap) annuities are now paying back that tax bribe they took years ago.

Pension saving is for suckers. Scottish Widows is misleading Michelle. Deliberately too. It is scandalous that this drivel is published. Lolly should hang its sugary head in shame.

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Jun 09, 2013 at 21:32

I'm retired and past all this meaningful discussion sic! With the benefit of hindsight on which of my 'bets' paid off and which didn't I can only describe all funds guestimates as pie in the sky. Bad health forced my early retirement and the several wonderfull funds which I had subscribed to dropped me and my wife right in it. Why? She desperately needed something when the stockmarket his bottom. A financial friend in need usually disappears when you need his most. The savings that have saved us were the ones we had control of. As for the rest; the deep and meaningfull discussions remind me of that old tale " last night upon the stair I met a man who wasn't there and when I looked again that man was gone.

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peter hart

Jun 09, 2013 at 21:57

If nsi bring back index linked bonds why would you put your money anywhere else.

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Dislexic Landlord

Jun 09, 2013 at 22:06

after reading through the comments why is anyone investing in personal pensions

we can not all be wrong ???

Its very sad the genaral public are persuded to buy Personal Pensions

and we have the next genaration starting very soon

The whole thing reminds me of world war one we will all go over the top again and we know the result but we will still do it its madness

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Michael Hellman

Jun 09, 2013 at 22:55

We are indoctrinated to save through pension schemes. The earlier you save is better and it wont need such huge amounts. But if your employer is generous and you have to contribute to get that generousity, what else are you supposed to do? Say no thanks to the employer. A better model might be out there but it isnt going to happen anytime soon.

It seems to me that once you are established and you have built up a pension fund in part through your employer, then absolutely go down the isa route.

Two friends one with a pension and one without are both laughing. One because he now receives an annuity and takes advantage of income drawdown and freely admits that he would have fritted any savings not tied up in a fund.

No2 friend laughing as she does not have to pay any tax on her considerable pile(isa's and cgt allowance) which generates a more than adequate income, but also she will not be able to spend it all in her lifetime.

We dont live forever

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mark jukes

Sep 18, 2013 at 16:13

There are some really confusing comments here, especially for me as I no little about this subject.

I ran my own business until about 2 years ago and contributed to a personal pension so I have built up a pension pot but have not put anything into it since then.

Next year I was planning on contributing again, around £300-£500 per month with the overall plan of doing this for 10 - 15 years until I retire.

This was cut and dried for me - but then I read these comments.

Perhaps I shouldn't contact my pension provider and hand the money over each month, perhaps I should look at doing it another way.

What do you guys think?

Don't blind me, no pension advisers and some general helpful pointers would be much appreciated.

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Tony Peterson

Sep 18, 2013 at 17:32


Pay your full allowance into a stocks and shares ISA and buy shares in NG or SSE. They are currently good value. If your electricity usage is anything like mine that will pay for your electricity costs now and through your retirement. Whatever happens to inflation. Next year's allowance might be directed towards ST or UU to (more than) cover your water bills for life. And so on.

Why should you, or anyone else, surrender control of income producing assets, and enrich middlemen, and suffer your family to lose it all when you die?

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Dislexic Landlord

Sep 18, 2013 at 17:33

Hi Mark

If I was going to invest £500 per month I would spread it around

ISA Pension stocks and shares

the guys in the smart suits make the money from pensions but they do have a place especialy if your a higher rate tax payer ???

But you have to look at what the pension offers when you retire ie how much you have put in and how long it will take to return your pension contrabutions

best od luck

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Oct 24, 2013 at 13:16

I have been reading and reading all about savings and pensions etc etc since a couple of days ago. I understand nothing about investments and shares but i do know i want to make smart choices in saving for my future.

I am 27, i currently have 11k in an isa account which i have owned since 06, which i am aware might not be generating any interest at all . Should i really be moving my money around? I have 5k locked away in one of these fixed rate 5 year investment account which nationwide recommended to the naive me, coming up to the 3rd year now and the last statement they sent me had absolutely no interest in it.

I have a student loan, repayment gets taken out of my monthly wages automatically, so i dont really think about this. Apart from that, i have no debt, no credit cards, mortgage, car insurance etc

I have another 1.2k sitting in a regular savings account, which earns 0.1% gross interest when i checked it yesterday. I am in a temp job, so my savings might come to an halt soon or continue if i hopefully get another job before then.

I earn 1.3k per month after tax, student loan and pension scheme of £80 pm. I started saving £400 per month some months back, which explains the 1.5k and i have decided to up it to £500.

Life story over. My questions are

1. should i take priority of my student loan? i dont think of it as a burden because only £30 gets deducted monthly. Is my thinking wrong to just ignore it as it is?

2. What are my savings option that really allows me to maximise my funds? I don't really need another advice from Nationwide

Thanks in advance

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Saleem via mobile

Dec 05, 2015 at 04:45


My Advice to everyone would be that if you don't have a stake in a property then by hook or crook you need to get onto the property ladder as soon as possible, even if it's a very small property. This will become one of your greatest assets down the road. When you have built up a decent amount of equity in this property then you need to release some of the equity to buy your 2nd property a buy to let. The entire process relies on you having a stable job especially when you get to your 2nd and subsequent properties as occasionally you will get void periods whend you may need to support a property. Over the years providing that you stick to your plan you can build up a portfolio of properties that will provide you with an income.

This is precisely what I did and now have six properties that generate around 4000 with substantial equity in some of the prooertues. I hope this helps

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Leigh Kirby

Jan 18, 2016 at 12:43

Can somebody help I have a flat that is worth 500K i look at this as my pension pot what do i get from it if i were to sell it or would i be better off keeping it and living of the rental income of 1.2K a month

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Leigh Kirby

Jan 18, 2016 at 12:51

I have a flat that is worth 500K i make nothing on the flat as the rent paid payes for the mortgage , when the morg is paid i will be looking at this as my pension pot, what do i do sell it or keep the 1.4K a month i make on rent to live off?

Your help is appreciated

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