And non-home owners who are privately renting into their retirement could need a total pot as high as £445,000 to avoid a slump in living standards when they stop work, the research indicated.
The report said that “as a broad rule of thumb”, people whose combined pension income equates to around two-thirds of their gross wages before they retire should not see a major change in their standard of living when they stop earning.
The calculations for the average amounts needed for retirement make several assumptions about someone’s life – including that they will stop work at 65, they will also have a full state pension to top up their savings and that they will have fully paid off their mortgage. The research also assumes they will use their pension savings to buy an annuity retirement income.
The typical £260,000 pot has increased by £110,000 compared with 2002, when the average “pension mountain” needed was £150,000, Royal London found.
Falls in the annuity rates being offered generally are behind the fluctuations, Royal London said, reflecting the low interest environment as well as the fact people are living for longer. But annuity rates have improved over the last year, it said, and the £260,000 pension mountain is smaller than a peak figure of nearly £290,000 that would have been needed in 2017.
Helen Morrissey, a personal finance specialist at Royal London, said: “This research is a reminder that when we save for retirement we are chasing a moving target. If our retirement pot is going to support us through a longer retirement, and in an era of lower interest rates, we are going to need to build a much bigger pot than in the past.
“More worrying still, we can no longer assume that we will be mortgage-free home owners in retirement. For those unable to get on the property ladder during their working life, a large private rental bill needs to be factored in to retirement planning.”
She said that if people are not nudged up to more realistic savings levels, “many millions of people will face a sharp drop in living standards when they retire”.