If you start a pension for a newborn, you're already 30 years too late

Does pension saving really need to start 30 years before you're born?


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Most people don't start to think about pensions until far too late in their lives to be sure of a comfortable retirement. That may not come as a huge shock. However, what's more surprising is that even if your canny parents started a pension for you on the day you were born, they'd already be 30 years too late.

A study has claimed that a baby born today would need to have been saving since 1984 in order to secure a comfortable retirement. But how can this be right, and if it is, how can any of us ever afford to retire?

The maths

The figures have been put together by Liberty SIPP. They worked on the basis that most people would be comfortable retiring on half the average UK salary of £27,000. To buy an annuity that secures an income of £13,500 - assuming you take the 25% tax-free lump sum - would cost £250,000 - so this is your savings goal.

They assumed people continued to pay contributions at the same rate as they do now, and calculated that it would take 95 years to reach this target. It means that someone who wanted to retire at the age of 65 would need to start saving 30 years before their birth.

John Fox, Managing Director of Liberty SIPP, commented: "Either we do something about this or we invent a time capsule so that a baby born in 2014 can start saving into a pension in the mid Eighties, in order to get a half decent retirement in 65 years' time."

The maths is sound, and the message depressing. We could be forgiven for thinking that this demonstrates that it's basically impossible to save enough for retirement and give up without even trying.


However, we shouldn't be so fast to throw in the towel and throw ourselves on the mercy of the state, because there are five ways in which we can improve our odds of a comfortable retirement.

1. Don't take the tax-free lump sum.
This means we only need to build up a pot of £188,000, which would still mean starting to save before we were born, but less early - a child born today would have needed to start savage in 1991.

2. Increase contributions.
The calculations demonstrate that the current average contribution rate is woefully inadequate, but if you start young enough, you don't have to make impossibly large contributions in order to save enough. Someone who starts saving at the age of 21 can generate £188,000 by paying in £1,305 a year. It's 6.3 times more than the current rate, but it's not an unimaginably enormous sum, and it beats starting to save before you are born.

3. Start younger. As the example above shows, starting at 21 means you have a great chance of being able to afford a comfortable retirement. The longer you leave things, the higher your contributions will have to be, so it's essential to start young.

4. Work a bit longer. Those who start saving later and cannot afford the large monthly contributions required for a comfortable retirement at 65 need to start thinking about work they would be happy to do after the age of 65.

5. Think carefully about generating an income. These figures are based on buying an annuity at the age of 65, but this isn't required of people any more. Before you get to retirement age, it's worth talking to the experts about the right solution for you. There may be alternative ways of saving for retirement and generating an income, which will enable you to live comfortably even without the aid of a time machine.