In a recent survey undertaken by MGM assurance, only a third of people said they were pretty well prepared for retirement, whereas almost a half were not ready at all.

At the same time, it was shown that those who had ‘regularly’ consulted an Independent Financial Adviser prior to retirement were more likely that those who had not to be satisfied with their pension income. In fact the research shows that they were three times as likely to have “fewer regrets” about their pension planning compared with “painful regrets” than those who had not sought advice from an IFA.

Which is, perhaps, a rather complicated way of saying: “congratulations, the fact that you are reading this article at all means that you are on the right track!”

However, research from Alliance and Leicester indicates that one in ten of us are cutting back on pension savings, largely because of increases in the cost of living. Interestingly, those aged over 55 are half as likely to have done so as younger people and this should tell us something; if you are already approaching retirement, you know just how important it is to keep planning.

Of course, with inflation racing ahead at well above the headline figure for most families, things are getting tight. “Empty nesters” are likely to have a higher disposable income than those with young families, which may also go some way to explaining why they are less willing to cut down on pension provision. But the fact that 20-somethings are cutting back on pensions is a pity, because while they have no family responsibilities can be a good time to be putting away money for retirement. After all, the longer money is left in the “tax shelter” of a pension or ISA, the more it can grow. So maximising contributions early on can make a massive difference to the eventual retirement pot.

It is always important to remember that the basic state pension is unlikely to provide very much in real terms so individual provision, either through a company scheme or a personal pension, is essential.

Take a person aged 64, currently earning £36,000 a year. If they were to rely solely on the basic state pension (currently £7,542 a year for a couple or £4,716 for a single person) their income would fall by between 79% and 86%, respectively, if they had no additional source of pension. Of course, the likelihood is that there will also be graduated pensions, its successor SERPS and the latest incarnation, Second State Pension as well. These are unlikely, however, to add very much to the equation.

Now consider how much the same person is likely to expect. For most people, a retirement income of about two thirds of their income when working is a target. This is based on the maximum that used to be allowed by the government under employer sponsored schemes, although this limit no longer applies. (Instead there is a lifetime limit on the size of your pension pot, currently set at £1.65 million which is roughly equal, in the government’s eyes to a pension of £82,500 a year.)

On this basis, a person on £36,000 a year has a target pension of £24,000. For a married person, this leaves a gap of £16,458 a year which, based on a joint annuity without even allowing for increases, would require a fund in excess of £250,000.

To build up a pot of this size requires either a long time, or a high level of contribution, or both!

It is important always to seek independent financial advice before making any decision regarding your finances. For further information, please contact Robert Bruce Associates on 0845 838 7377.