AE and state pension won’t be enough to retain lifestyle

  • Aegon analysis shows 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.
  • The analysis shows a 22 year old on average earnings would need to contribute an additional 4% above the 8% minimum combined contribution in order to retain their lifestyle in retirement or risk falling £106,500 short of the required savings.
  • For those starting their pension savings later on in life, this will be much higher.

Analysis from Aegon shows those wanting to retain their lifestyle into retirement shouldn’t be lulled into a false sense of security just because they’re in a workplace pension. While some in such 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.

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 (target replacement rates)*. For someone earning around £13,000 the percentage needed to maintain lifestyle was 80%. For those earning around £27,000 the percentage is 67% and this falls to 50% for those earning around £56,000.

Aegon has calculated the monthly income individuals would need on top of the full state pension (£168.60 per week) to maintain their lifestyle in retirement.

table 1 - AE release.JPG

These are significant sums and the sooner people start saving towards them the better. Automatic enrolment minimum contributions made by individuals and their employers to workplace pension schemes will help, but are unlikely to bridge the full gap.

The savings pot auto-enrolment will deliver and the amount needed to close the replacement rate gap

For an employee on average earnings of around £27,000, Aegon’s calculations show how much they might build up from minimum automatic enrolment contributions. We then calculate 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). 

table 2 - AE release.JPG

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.

“Someone who is auto enrolled into a workplace pension from age 22 might still face a gap of £106,500 in today’s money. To plug that, they might need to pay in an extra 4% of earnings on top of the 5% they are currently required to pay under auto enrolment. But someone without any prior pensions auto enrolled at age 35 would need to pay an extra 13%.

“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% from take home pay to have 4% 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.”


As with all investments, the value can fall as well as rise and isn’t guaranteed. Customers could get back less than originally invested.

*Automatic Enrolment Review, 2017, Figure 4.15

**The amounts needed are based on how much it currently costs to buy an annuity of that amount using the average of the top 3 annuity rates from the money Advice Service annuity comparison tool which on 9 August 2019 suggests a £300,000 fund would buy a monthly income of £767 per month increasing in line with inflation for someone in good health. Fund amounts are rounded to the nearest £100.

***These figures assume individuals are just being auto-enrolled and have no existing pension pot. The older an individual is, the more likely it is they will have some pension savings, which will reduce how much their gap is. The figures assume investments grow at 4.25% after charges and earnings grow at 3% per year and price inflation is 2% a year.

Under automatic enrolment, minimum contributions are 5% gross from employee or 4% from take home pay and 3% gross from employers. Until 2025, we have based contributions on a band of earnings above £6,136 but the Government has indicated from then on contributions will be based on full earnings so we assume contributions are a % of total salary thereafter.


Notes to Editors

As with all investments, the value can fall as well as rise and isn’t guaranteed. Customers could get back less than originally invested.

  • In the UK, Aegon offers retirement, workplace savings and protection solutions to over three million customers. Aegon employs around 2000 people in the UK and together with a further 800 people employed by Atos, we serve the needs of our customers. More information:
  • As an international life insurance, pensions and asset management group based in The Hague, Aegon has businesses in over twenty five markets in the Americas, Europe and Asia. Aegon companies employ over 28,000 people and have millions of customers across the globe. Further information:

*Figures correct as of August 2019