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Personal Pensions

Volume 461: debated on Thursday 21 June 2007

To ask the Secretary of State for Work and Pensions what his latest estimate is of the required personal contribution into a personal pension which would have to be made by a person aged 35, on median earnings and retiring at age 65, in order to receive a pension in retirement equal to (a) 25 per cent., (b) 30 per cent., (c) 35 per cent., (d) 40 per cent., (e) 45 per cent. and (f) 50 per cent. of their median earnings; and if he will make a statement. (141852)

Published analysis regarding the replacement rates and incomes individuals could expect at retirement can be found in Figure 2.iii of the May 2006 White Paper, Security in Retirement Regulatory Impact Assessment. This shows that an individual with an average lifetime income of £25,000, who is 30 in 2012, could expect a replacement rate of 44 per cent. from having saved in a personal account, an improvement of 10 per cent. over the non-saving replacement rate.

This table provides an indication of the net individual contribution rates required to achieve an income in retirement equivalent to a proportion of earnings today. This is based on a male median earner (£24,000 in 2007-08) who starts work aged 25 and starts saving at age 35 in 2012 to retirement at age 68. This individual would achieve a total replacement rate of 45 per cent. (an improvement of 9 per cent. from having saved) with contributions above the band of 4 per cent. from the employee, 1 per cent. from tax relief and 3 per cent. from the employer.

Rates in the table are rounded to the nearest whole number.

Percentage

Net individual contribution rate (on banded earnings)

Percentage of total earnings

Replacement rate from pension saving

Total replacement rate

13

10

25

61

16

13

30

66

19

15

35

71

22

17

40

76

25

19

45

81

28

22

50

86

Notes:

1. This table is for illustrative purposes only. It should not be used as the basis for individual decisions as specific circumstances or variation from the underlying assumptions will lead to different results.

2. The results assume an AMC of 0.5 per cent., an employer contribution of 3 per cent., no phasing of contributions, and no contribution cap.