Savers aim for a £250k pension fund, but typically end up with a huge shortfall at retirement

Pension saving: People are falling far short of the average target of building a £250k pot, a survey finds

Savers aim for a pension pot of £250,000 on average but end up with just over half of that in reality, new research reveals.

People have £131,000 on average by the time they reach retirement, a massive shortfall in the amount they hoped to have available to buy an annuity or invest to generate an income.

A £250,000 pot can buy an annuity – which provides a guaranteed income for life – worth £12,091 a year at today rates, according to Standard Life.

A £131,000 fund can currently get you an annuity of £6,332 a year.

Many people now take advantage of pension freedom to keep their fund invested in old age, which gives you the chance to still grow your pot as you make withdrawals.

An influential industry report which looks at what individuals or couples need for a minimum, moderate or comfortable retirement shows the costs have risen significantly across the board over the past year.

A couple now need £59,000 a year to be comfortable in old age, according to the study from the Pension and Lifetime Saving Association.

A single person needs to save even harder and achieve a £43,100 income to cover meals out, holidays, theatre trips and a car, in addition to everyday essentials.

> What to do if you fear your pension is falling short: Scroll down for a checklist

The PLSA figures assume you qualify for a full state pension, which rose to £11,500 this month, but the income figures do not include income tax, housing costs – if you rent or are still paying off a mortgage – or care fees.

See the below for what lifestyle you can have in terms of food and drink, transport, holidays, clothes and social outings at different income levels.

Single income household: Having one state pension rather than two means you need to save a bigger work or private pot before retirement

Separate recent research from comparison website Finder showed saving via auto-enrolment will provide just £22,800 a year after tax for people entering the workforce today.

Finder’s figures also assumed someone would receive a full state pension, and they were otherwise based on an employee contribution of 5 per cent of salary – including pension tax relief from the Government – a 3 per cent employer contribution, annual investment growth of 5 per cent and fees of 0.75 per cent.

Who pays what: Auto enrolment breakdown of minimum pension contributions. (Qualifying earnings are those between £6,240 and £50,270 of salary)

Standard Life found half of retirees have regrets about their financial preparation, with 53 per cent wishing they had started saving earlier, and 42 per cent that they had got financial advice or guidance.

Pensionwise is a Government-backed organisation which gives free appointments on retirement planning to over 50s, or see the box below if want help finding paid for financial advice.

Standard Life polled 6,350 UK adults and results were weighted to be nationally representative on key demographics.

‘It can be hard to work out how much you need to save to achieve your desired standard of living in retirement, particularly earlier on in your career,’ says Dean Butler, managing director for retail direct at the firm.

‘It’s even harder to stick to it, as everyday expenses and those one-off costs that come up in life constantly threaten to move long-term saving down the priority list.

‘Clearly there’s a big gap between what people hope to save, and what they actually do – this is unsurprising, particularly when looking at it during a cost-of-living crisis, however the result can be a significantly reduced standard of living in retirement.

‘Ultimately, contributing as much as possible, as early as possible is the key to a good retirement outcome.’

Dean Butler offers the following tips, and scroll down for our guide to sorting out your pension.

– Make sure you’re taking advantage of all the benefits of your pension plan and your employer offers.

If your employer offers a matching scheme, where if you pay additional contributions your employer will match them, consider paying in the maximum amount your employer will match to get the most out of it.

– Deciding to pay some or all of your bonus into your pension plan could save you paying some big tax and National Insurance deductions. Meaning you could keep more of it in the long run, and it could be a great way to give your pension savings a boost.

– If you’re able to, think about paying a little more into your pension when you get a pay rise or have a little extra savings.

How to sort out your pension if you fear it’s falling short

1) If you are worried about whether you will have saved enough, investigate your existing pensions. Broadly speaking, you need to ask schemes the following questions.

– The current fund value.

– The current transfer value – because there might be a penalty to move.

– Whether the pension is in a final salary or defined contribution scheme. Defined contribution pensions take contributions from both employer and employee and invest them to provide a pot of money at retirement.

Unless you work in the public sector, they have now mostly replaced more generous gold-plated defined benefit – career average or final salary – pensions, which provide a guaranteed income after retirement until you die.

Defined contribution pensions are stingier and savers bear the investment risk, rather than employers.

– If there are any guarantees – for instance, a guaranteed annuity rate – and if you would lose them if you moved the fund.

– The pension projection at retirement age. You can use a pension calculator to see if you will have enough – these are widely available online.

2) You should add the forecast figures to what you anticipate getting in state pension, which is currently £221.20 a week or around £11,500 a year if you qualify for the full new rate. Get a state pension forecast here.

3) If you are tempted to merge your old pensions, read our guide first to ensure you won’t be penalised.

4) If you have lost track of old pots, the Government’s free pension tracing service is here.

Take care if you do an online search for the Pension Tracing Service as many companies using similar names will pop up in the results.

These will also offer to look for your pension, but try to charge or flog you other services, and could be fraudulent.