State pension cost exposed: Britons need close to £300,000 in savings to match DWP retirement benefit
Britons will need savings worth over £200,000 to match the state pension
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Britons need close to £300,000 in retirement savings to match the state pension, according to new analysis from Fidelity International.
The investment company is shining a light on the true cost of the retirement benefit from the Department for Work and Pensions (DWP) as the payment becomes as a "battleground" issue ahead of the upcoming General Election on July 4.
How much does the full state pension cost?
Retirees will need to have around £287,560 saved in their pension pot to match the amount currently provided by the DWP benefit.
As it stands, the full new state pension, which is available to to those retiring after April 6, 2016, comes to £221.20 a week which comes to £11,502.40 annually.
At this amount, pensioners will need to have £223,434 in retirement savings to replace the benefit.
This is based on purchasing an annuity to replace the income provided by the state pension.
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Rishi Sunak has pledged to introduce the "triple lock plus" if he wins the upcoming General Election
PA | GETTYThrough annuities, Britons are able to exchange money saved inside their pension pots for a guaranteed income.
Interest rates on annuities vary depending on the product but currently the rate paid to a 65-year-old in good health is around 5.148 per cent, according to SharingPensions.co.uk.
This takes into account income payments increasing by three per cent a year to mitigate inflation-hiked rises in prices for goods and services.
However, annuities are not the only options available for those looking to get a steady income while in retirement.
Through income drawdown, savers are permitted to leave their money in a pension pot and take income or lump sums from it whenever they want.
Usually, retirees are able to withdraw around four per cent annually from a drawdown pot and are likely to still have enough savings to last for three decades.
Based on this four per cent calculation, Britons will need to have £287,5604 of pension savings in drawdown to recreate the income from the state pension income.
This is noticeably more than an annuity and comes without the guarantee that income will last someone passes way.
However, income drawdown comes with the benefit that the money provided remains the saver's alone.
Ed Monk, the associate director at Fidelity International, outlined how someone could potentially save this amount to match the state pension.
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Pensioners face being taxed on the state pension as it increases by the triple lock but the personal allowance remains frozen GETTYHe explained: "Saving those sorts of sums is no mean feat - but the job is made easier the earlier you start.
"For example, someone aged 30 and saving until their projected state pension age of 68 would have to set aside about £225 a month into a pension, assuming five per cent investment growth after all fees, in order to achieve a pot worth the £287,560 needed to recreate an income to match the current state pension. This is purely illustrative - investment returns are not consistent, and the value of your money can fall.
"And remember that the state pension in the future is very likely to be significantly more than it is today in cash terms, so to truly match it with your pension would require you save significantly more.
"One way to achieve that is by escalating your contributions. In our example, a 30-year-old may begin by saving £225 a month but could increase this in line with their wages as their career progresses."