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According to PensionBee Group (LSE:PBEE), the average retirement pot, including Self-Invested Personal Pension (SIPP) plans, is currently £20,077. However, this includes all age groups and those who have more than one scheme.
Of those with a personal pension, the Office for National Statistics reckons the median value’s £57,500. This drops to £19,700 if those who haven’t saved for retirement are included.
Whatever the correct figure, it’s probably too small.
Do as I say, not as I do!
Personally, I hate reading those articles that make you feel guilty for not saving enough. Sorry! After all, everybody’s circumstances are different and being old seems so far away when, for example, you’re 18.
But it’s undoubtedly true that saving regularly from a young age is the secret to retirement success, especially with the State Pension age continuing to rise. Plans are afoot to increase this to 68. Currently (12 July), the full pension is £11,973 a year.
But given that it’s impossible to rewrite history, let’s see how much someone aged 45, who has yet to start a pension, would need to save to generate £1,000 a month by the time they turn 68.
I’ve chosen this figure because, when added to the State Pension, it’s roughly equal to two-thirds of the average UK salary. This benchmark’s often used as a guide for a ‘comfortable’ retirement.
Getting into the detail
In 1994, William Bengen devised the ‘4% Rule’. This is intended to make a pension pot last at least 30 years. The basic concept is that you withdraw 4% in year one and then take a similar amount, adjusted for inflation, thereafter.
Following this approach, our hypothetical pensioner would need a SIPP worth £300,000.
This could be achieved by investing a lump sum of £5,860 each year for 23 years, assuming an annual growth rate of 6.2%. According to JP Morgan, this is the average annual return of the FTSE All-Share index since 2015, with dividends reinvested.
Suddenly, the idea of waiting to 45 before starting a pension doesn’t seem as disastrous as initially feared. But there’s no guarantee that such a return can be achieved. However, even a small growth rate’s likely to beat doing nothing.
Something to consider
One company that has a vested interest in seeing people save more for their retirement is PensionBee. Seeing itself as a disruptor, the online personal pension provider encourages savers to consolidate their existing pensions with them. Using third parties, it also offers seven retirement plans.
The group now has 275,000 customers and £5.8bn of assets under management.
In 2024, it reported revenue of £33.2m. By 2030, it hopes to have annual sales of £100m. The industry’s highly competitive so it will be interesting to see how it fares against this target.
But in October 2024, to fund its US market entry, it surprised investors by announcing a £20m rights issue. Small private investors were diluted as only institutional investors were allowed to participate.
And the company remains loss-making, although it should record a small post-tax profit in 2025. However, based on revenue, Canaccord Genuity claims PensionBee’s the world’s fastest growing listed digital platform.
After balancing the pros and cons, I think the stock’s one that a 45-year-old investor (and others) could consider adding to their SIPP.
