Prioritizing Pension Planning in the Face of Dwindling State Pension Value

Strategic Insights -

Pension planning has taken a hit in recent years, following high-profile scandals in personal pension plans and employers' schemes. However, for the average person, a pension should be a top investment priority. With property no longer considered an investment, some argue that pension planning should have equal, if not higher, priority than a mortgage. The basic state pension, currently worth £57.60, will be decreased in value by 2020, making it worth only 10% of national average earnings.

Key Takeaways:

  • According to the Institute for Fiscal Studies, the state pension will be worth barely 10% of average earnings by 2020.
  • Richard Malone of Sedgwick Noble Lowndes advises starting pension planning as early as 25 and contributing at least 15% of lifetime earnings.
  • Ken Norman of the Wyatt Company suggests saving 10% of gross salary towards retirement.
  • Employer's schemes are often the best option, with contributions counted towards the 10-15% goal.
  • However, personal pensions may be unsuitable for low earners due to charges.
  • Investing in property is no longer considered an investment, making pension planning a top priority.

Statistics:

  • Basic state pension value: £57.60
  • Value of state pension by 2020: 10% of national average earnings
  • Contribution rate for pension planning: 10-15% of lifetime earnings
  • Recommended contribution rate: 10% of gross salary
  • Minimum salary threshold for personal pension: £10,000
  • Number of years to reach adequate financial security: 40-45 years

Sources:

  • Institute for Fiscal Studies
  • Richard Malone, Sedgwick Noble Lowndes
  • Ken Norman, Wyatt Company