I got to wondering whether there's actually enough money in the UK economy to fund pensions going forwards.
The simple answer is that there's easily enough private household disposable income to cover a comfortable retirement for everyone in the UK....
Taking mean household disposable income and expenditure the average UK household spent £1600 less a month than in took in....
The UK household expenditure stats are pretty generous in terms of expenditure, covering all of the basics such as housing, energy and transport as well as clothes, restaurants, hotels, even education and medical expenses.
As far as I am aware personal pensions contributions aren't factored into either - that is I don't think personal employer linked pensions contributions are taken off before disposable income is calculated (NI is), and I couldn't find any reference to pensions contributions in the expenditure, so we have to factor this in, I think!
So the average UK household has £1600 a month to play with... or £800 per adult, given that the average household size in the UK is just over 2, and the costs of childcare are factored into the above expenditure.
Applying compounding monthly for 20/30/40 years of saving £400 and £800 per month (50 and 100% of spare mean disposable income) we get the following size of pension pots per person ...
£400/ month @3% compounded
- after 10 years = £132K
- after 20 years = £234K
- after 30 years = £372K
£800/ month @ 3% interest compounded
- after 20 years = £263K
- After 30 years = £467K
- After 40 years = £763K
I've bolded up what I think is the more reasonable = 50% of 'luxury income' for 30 years - starting saving at age 35 and ending at age 65 - a £372K pot is enough to give someone over £20K a year of a private pension, and they've still got the state pension on top.
And then factor in that if you're in an employment pension scheme, your employer and the government effectively double your contributions, meaning you would either have double that, or have to pay in half!
All of this means on the mean-average there is EASILY enough money being earned to cover comfortable retirement for everyone while still allowing some pretty generous expenditures!
However there is that cheeky income distribution issue...
The problem with the above is that pretty much anyone falling below the median income is going to struggle to put away £400 per person!
And this will be exaggerated further because the above stats include already retired households who will be drawing down, although in reality the money NOT going towards retirement pots from these households will largely be compensated for by the wealth children will inherit from their parents' houses.
But this will jus compound (excuse the pun!) the inequality of capacity to save for personal pensions.
Conclusions...
There's enough income and wealth to go around and avert a pensions crisis in the future, the main problem I think is one of unequal distribution which will see the poorest 50% of households and people struggling to save!