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The minimum wage will be a distant pipe-dream for the average current and future pensioner, according to research by pension provider Liberty SIPP.

So just how miserable is life set to be, and what can we do about it?


The company calculated that a person retiring at age 65 would need a pension pot of £220,276 to have an annual income equivalent to the minimum wage (£6.19 per hour or £12,115.20 a year). At the moment, however, the average UK pension pot is estimated to be around £30,000 - less than a seventh of the amount needed to generate a minimum wage income.

This is also way below the £8,254 a year that the Joseph Rowntree Foundation estimates marks the poverty line for a single pensioner in the UK.

John Fox, Managing Director, Liberty SIPP, commented: "These simple calculations drive home just how extreme the current pension crisis is. It's widely known that many pensioners are on the breadline but when you think that the typical retirement income will be just one seventh of the minimum wage, it relays the true extent of the problem we're dealing with."

Alternatives

Of course, pensions are not the only sources of income. Research from JP Morgan Asset Management revealed that 46% of pre-retirees admit they currently save nothing for retirement.

Almost half of respondents (47%) said that they will use state benefits as their expected source of income in retirement (up from 29% in 2006). At the moment, the state pension can be added onto any private pensions, which will bring many households within touching distance of the minimum wage. The question is how long the state pension is going to be part of the equation - and whether in 20 or 30 years time the level is so low - and starts so late in life - that it can no longer be factored into your pension planning.

Others will add their property value into this (16%) , but there's always the risk that you will not be able to downsize at the key time, or that property prices work against you. Similarly the 16% who are relying on an inheritance to fund their retirement are overlooking the risk that their relatives spend their money or fail to pass away in time. Almost a third (32%) say they will work part time, although this depends on them being in good enough health to work.

Help yourself

There is no easy answer to this crisis. There's no getting around the fact that the only away to be certain of avoiding poverty in retirement is to save as much as you can as early as you can. As a basic minimum, younger people need to be putting aside £200 a month, which should increase as you get older and your income rises. Those who start saving later in life will have to put a great deal more aside in order to make a dent in their retirement needs.

It may feel a burden too far in the current environment, but we need to sit down with a household budget and work out how we can squeeze this extra cash out of our income in order to save for the future. It may seem impossible, but if you think things are tough now, try living on seventh of the minimum wage.