'Comfort' pension level is £15,000, says study

couple on beach Image copyright Thinkstock
Image caption Happy days. But only with a pension of more than £15,000

Those planning their retirement should try and plan for an income of at least £15,000 a year, according to an industry report.

Once people reach that income level, they begin to feel more comfortable and more financially secure.

But there is no happiness benefit above £40,000 a year, said the National Employment Savings Trust (Nest).

However, other experts recommended a "fixed percentage" method of planning.

The report found that wellbeing jumps significantly once retirees earn between £15,000 and £20,000 a year, including their state pension.

While 43% of people in that category felt financially comfortable, just 24% felt comfortable when earning less than £15,000.

Many people earning less than that find it difficult to afford energy bills and groceries, said the Nest report.

The £15,000 contentment threshold applies however many people there are in the household.

Increased contributions

The research will help to give people a more accurate idea of how much they need to save for retirement on top of their state pensions, a key idea behind the government's pension reforms.

The revised state pension is expected to be worth at least £7,500 a year when it comes in in April 2016.

On that basis a 22-year-old earning £20,600 a year would only need to make the minimum pension contribution to get close to the £15,000 threshold, by the state retirement age.

With a 4% employee contribution into his or her pension, and a 3% employer contribution, that person could expect a total income of £14,260.

However, a 30-year-old starting payments on the same salary could expect to receive much less - £11,790 - including the state pension.

A 40 year-old would receive just £10,210, so might need to consider increasing contributions.

Replacement rate

Nest - a non-profit-making organisation which supplies pensions under automatic enrolment- has also produced some tips for saving into a pension.

It claims that if a 30-year-old worker replaced a takeaway with a home-cooked meal at least once a week, they could save £12 a week.

If all of that was paid into a pension, it could build up to a pot worth more than £50,000.

By buying a packed lunch to take to work, people could amass a pension pot of more than £63,000.

But other experts believe people might be better off planning for an income which is a fixed percentage of the amount they used to earn while working.

In other words, those who earn more while working will need a bigger pension when they stop.

"The lower someone's pre-retirement earnings are, the higher proportion of those earnings their pension will need to be in retirement," said Tom McPhail, pensions expert with Hargreaves Lansdown.

"If someone is on a salary of £15,000, they will want a replacement rate of at least 80%," he said.

"Someone on a salary of £30,000 might want a two-thirds replacement rate."

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