Analysis from life and pensions firm Aegon has found that, for the majority of individuals, the state pension and their pension from auto-enrolment will not be enough to maintain their pre-retirement lifestyle.

While some people in workplace pensions will be paying substantial sums, often matched by their employers, others who are paying at the auto-enrolment minimum may find themselves far short of being on track for a comfortable retirement.

The analysis shows a 22-year-old on average earnings would need to contribute an additional 4 per cent above the 8 per cent minimum combined contribution in order to retain their lifestyle in retirement or risk falling £106,500 short of the required savings.

How much should you save for retirement?

A government review of auto-enrolment in 2017 set out what proportion of pre-retirement earnings individuals would need to maintain their lifestyle in retirement.

For someone earning about £13,000 the percentage needed to maintain their lifestyle was 80 per cent. For those earning about £27,000 the percentage is 67 per cent and this falls to 50 per cent for those earning about £56,000.

Someone earning £13,000 with a target annual retirement income of £10,400 would need £53,200 to buy an annuity which would generate this amount of income. Someone earning £27,000 targeting a retirement income of £18,090 would need £303,900, while someone on £56,000 with a target income of £28,000 a year would need £627,000 to buy a sufficient annuity.

Aegon says these are significant sums and the sooner people start saving towards them the better. It added that although auto-enrolment minimum contributions made by individuals and their employers to workplace pension schemes will help, they are unlikely to bridge the full gap.

Steven Cameron, pensions director at Aegon said: “Maintaining your lifestyle throughout your retirement years is something many people aspire to. But for most individuals, this will not be the reality if they are simply being auto-enrolled into their workplace pension.

“Someone earning £27,000 should be aiming for an annual income in retirement of around £18,000 in today’s money to maintain their lifestyle. While the state pension will on current terms provide around £8,767 of this, and being automatically enrolled will also produce a valuable fund, they still face a major shortfall and the longer people wait to address this, the harder it is to catch up.”

Increasing contributions

For an employee on average earnings of about £27,000, Aegon’s calculations show how much they might build up from minimum automatic enrolment contributions. Researchers calculated the additional contribution needed on top to plug the gap in savings and reach the target income needed to maintain their lifestyle in retirement (targeting £303,900 in today’s money).

It found a 22-year-old would need to save an extra 4 per cent of their salary, a 35-year-old 13 per cent, and a 45-year-old 29 per cent.

Cameron added: “While these extra amounts may seem daunting, some employers will ‘match’ any additional employee contributions with an equivalent employer contribution. In addition, the government grants tax relief on employee contributions. This can mean it can cost as little as 1.6 per cent from take home pay to have 4 per cent paid into your pension.

“The best chance of getting close to maintaining your lifestyle in retirement is to start paying more than the automatic minimum from as early as possible. It can pay to seek advice to ensure you are on track for the retirement you aspire to.”