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What level of pension contribution is needed to obtain an adequate retirement income?

Author

Listed:
  • Redwood, Daniel
  • Carrera, Leandro N.
  • Armstrong, John
  • Pennanen, Teemu

Abstract

Under automatic enrolment, employers are required to automatically enrol their employees into a qualifying pension scheme. The minimum total contribution rate is 8% of a band of earnings from £5,668 and £41,450 per annum, of which a minimum 3% must come from the employer. With over 80% of Defined Benefit (DB) schemes now closed to new members or future accruals the majority of employers are expected to select a Defined Contribution (DC) pension as their qualifying scheme. This report analyses what ranges of retirement incomes from a DC pension different individuals might achieve by making only the minimum required level of contributions. The report also analyses the contribution rate necessary for different individuals to have a “good chance” of achieving an adequate retirement income. This report employs outputs from the PPI Individual Model adapted to use stochastic modelling techniques, based on a model developed by the Department of Mathematics at King’s College London. Each individual modelled is run 100,000 times with different economic scenarios. This illustrates better the variability around investment returns and economic variables year on year.

Suggested Citation

  • Redwood, Daniel & Carrera, Leandro N. & Armstrong, John & Pennanen, Teemu, 2013. "What level of pension contribution is needed to obtain an adequate retirement income?," LSE Research Online Documents on Economics 54233, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:54233
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    File URL: http://eprints.lse.ac.uk/54233/
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    References listed on IDEAS

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    1. Richard H. Thaler & Shlomo Benartzi, 2004. "Save More Tomorrow (TM): Using Behavioral Economics to Increase Employee Saving," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages 164-187, February.
    2. John F. Cogan & Olivia S. Mitchell, 2003. "Perspectives from the President's Commission on Social Security Reform," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 149-172, Spring.
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    Cited by:

    1. Sergio Alvares Maffra & John Armstrong & Teemu Pennanen, 2020. "Stochastic modeling of assets and liabilities with mortality risk," Papers 2005.09974, arXiv.org.
    2. Kaifala, Gabriel B. & Paisey, Catriona & Paisey, Nicholas J., 2021. "The UK pensions landscape – A critique of the role of accountants and accounting technologies in the treatment of social and societal risks," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 75(C).
    3. John Armstrong & Cristin Buescu, 2019. "Collectivised Post-Retirement Investment," Papers 1909.12730, arXiv.org, revised Apr 2020.

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    More about this item

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics
    • N0 - Economic History - - General
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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