Pension funds 'must exceed £100,000

People retiring this year will need a private income of £130,000 over their remaining lifetime to enjoy a comfortable standard of living, research showed today.

To achieve this, they will typically need a private pension fund of between £100,000 and £120,000 to use to buy an annuity.

Analysis by insurance company Prudential showed that the average pensioner currently had an income of around £12,500 a year, of which almost half was made up of state benefits and the remaining £6,250 from other sources.

Increased life expectancy means the average man retiring at 65 this year could expect to live until he is 82. A private income of £6,250 would add up to a total of £106,250 over his retirement.

The situation is even worse for women, with the average woman retiring at 60 likely to live until to 85, meaning her pension will have to generate at least £156,250.

And the sum needed will be even higher for people retiring over the coming 15 years as a result of increased life expectancy and a fall in the proportion of pensioner income made up of state benefits.

Prudential estimates the proportion of pensioner income accounted for by state benefits will fall to around 44% by 2013/14, from 50% today.

At the same time, the Government Actuary's Department has predicted life expectancy will rise by at least another three years by 2020.

Roger Ramsden, Prudential's executive director, said: "Pensioner incomes have risen faster than average earnings over the past eight years, yet today's pensioners are still grappling with a retirement gap which can only grow unless we all take action.

"Average pensioner incomes, of course, do not tell the whole story. Nearly one in five OAPs currently live on just £5,000 a year and one in three get by on £7,500."

He added: "All of us today are lucky that we can expect to live longer, but it is essential that we wake up to the financial implications and ensure that we are able to enjoy our extra years."

Previous research carried out by the group found that people were aware they were likely to have a long retirement, with two-thirds of people expecting to live for 15 years after giving up work, while a third expect to live for another 20 years.

But despite this, people are failing to plan accordingly, with the average pension fund worth only £40,000 on retirement, which at current annuity rates would produce an income of just £2,000 a year.

Yesterday the National Pensioners Convention, a lobby group for the retired, called on the government to make the state pension more generous.

"Official figures show that well over 2.5 million older people are living below the poverty line, more than 30,000 died last year from the cold and one in seven are at risk of being malnourished," said Joe Harris, the group's general secretary.

"The government must act now to raise the basic state pension to at least £114 a week for all men and women and restore the link with earnings.

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