'Pension boost needed as life expectancy improves'

The Times Online, 1st July 2008.

'Savers need to significantly increase their pension contributions if they want an adequate income in retirement, otherwise living longer could prove to be more of a curse than a blessing. Based on current assumptions of life expectancy a husband and wife need to save about £413,000 to retire comfortably at 65, while those living on their own need to save about £326,700.

However, this assumes a typical life expectancy of 85 for a man and 88 for a woman. Someone who lives to 100, which is becoming increasingly common, would need to save about £708,500 - an extra £295,000 - according to a report issued by Life Trust Insurance.

It warns that basing retirement expectations on average life expectancy figures is deceiving as they do not highlight the real chances of a person reaching an advanced age. For example, someone who is 55 today has a one in four chance of reaching 95 and a one in 10 chance of making 100.

Similarly, someone who is 35 today has an almost one in three chance of reaching 95 and a one in seven chance of reaching 100. For every extra year, there will be extra expenditure. The Life Trust figures assume an inflation rate of 2.3 per cent, which means that even they may prove to be an underestimate. If inflation were to remain at today's current level of 3.3 per cent, the cost of retirement would rise to 1 million for the average person living to 100. If inflation were to increase and hit the 4.3 per cent level, as some analysts predict, you would need 1.3 million to live comfortably and receive a telegram from the Queen.

Those choosing to retire early will also need more. Retirees finishing work at the age of 50 will need an additional £373,000, or around £25,000 per year, to fund their retirement. Andy Briscoe, CEO of Life Trust, said: 'People are living longer, healthier lives. This is great news but only if people have the finances in place to really enjoy their post-career years.'

The problem is exacerbated by a lack of pension savings. The latest pension report by Scottish Widows, an insurer, shows almost half the nation (49 per cent) is still not saving adequately.'