Its modelling shows that a 55-year-old on median UK earnings (£38,000) who wants to retire at 67 would need to save around an extra £74 a month (2.3% of salary) until retirement to bridge the one-year gap before becoming eligible for the State Pension.
While higher earners would need to save broadly the same cash amount, the impact on affordability is very different. Someone earning £80,000 would still need to save around £74 a month, but because of their higher income and greater tax relief, this equates to around 1.1% of salary, compared with 2.3% for someone on median earnings.
Once pension tax relief is taken into account, the impact on take-home pay falls to around £53 a month (1.7% of salary) for the median earner using salary sacrifice, compared with £43 a month (0.6% of salary) for an £80,000 earner.
Martin Willis, Partner at Barnett Waddingham, part of Howden, said: "People have understandably focused on the £12,500 they'd need to replace if they still wanted to retire at 67. But for many households, the more immediate question is what it means for their monthly finances. Our modelling suggests a typical 55-year-old on average earnings would need to find around an extra £74 every month - and if that's difficult for someone on average earnings, it'll be even harder for those on lower incomes.
"Everyone loses broadly the same year's State Pension, but replacing it isn't equally affordable. The cash amount may be similar, but it takes a much bigger bite out of the budget for someone on average earnings than it does for a higher earner. That's why giving people plenty of notice of any changes is so important."
"This also assumes people will continue working and contributing to their pension until they retire, although for some that might not be realistic. Whether because of ill health, caring responsibilities or physical demands of their job and anyone hoping to retire earlier or reduce their hours will have even less time to plug the gap. Even relatively small increases to pension contributions can make a meaningful difference if they're made early enough, whereas leaving it until the final years before retirement makes catching up far more difficult."
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