19 July 2023
- RBC Brewin Dolphin has obtained FOI data on the country’s top pension savers as tracked by the Office of National Statistics
- According to the files, the top saver is sitting on pension wealth of c. £11 million
- Wealth managers at RBC Brewin Dolphin say a pension of this size could spin-off an annual income of £540,000
The UK’s biggest pension as tracked by the Office for National Statistics (ONS) stands at approximately £11million, files reveal.
Wealth manager RBC Brewin Dolphin obtained the data following a series of Freedom of Information (FOI) requests.
According to figures collated in 2022, statisticians estimate that some 929,000 savers have accrued pension wealth of £1-2million, with 128,000 sitting on pensions worth £2-3m, and 46,000 investors in the £3m+ bracket.
The ONS estimates you need to have pension wealth of £374,500 to be among the top 10% of retirement savers, with the median or typical figure standing at £637,500.
RBC Brewin Dolphin calculates that someone looking for a comfortable retirement requires at least £37,300 per annum to live on. To hit that target, the retiree would need a pension wealth of £630,0001 in today’s money
Rob Burgeman, investment manager at RBC Brewin Dolphin, said: “Building a war chest for retirement can seem extremely daunting at first, but money saved regularly over long periods can produce quite dramatic results, as the ONS data demonstrates.
“Whatever your income, there are a couple of powerful weapons to be aware of in your armoury when planning for retirement.
“Making use of tax reliefs is crucial: a basic rate taxpayer saving £80 of take-home pay into a pension gets a £20 top-up from HMRC, making a total investment of £100 — or an instant return of 20%. As Paul Daniels used to say, ‘that’s magic.’
“Then there’s the mathematical phenomenon of compounding, or interest on your interest. Albert Einstein called it ‘the eighth wonder of the world’ — and who are we to argue with the great man.
“Factoring in tax relief, a £100-a-month plan would only actually cost an investor £80 per month, bringing total contributions to £9,600 after ten years.
“But as your pot grows you are gaining interest on your increased amount, meaning your pension wealth could balloon to £15,592, assuming 5% annualised returns after fees.
“The miracle only becomes greater over longer time horizons. Over 20 years, the same plan could see contributions of £19,200 more than double to £41,274. Another decade still and £28,800 could become £83,572. After 40 years, contributions of £38,400 could soar to £153,237.
“There’s no question that the magic of compounding mixed with some sound tax advice makes for an extremely potent cocktail.”
But just how would someone amass £11million in pension wealth? Investors would need to start Fearly and hope for healthy returns. RBC Brewin Dolphin found that an 18-year-old entering the workforce today would have to invest £49,260 annually (or £4,105 a month) including tax relief to accumulate an £11m pot by the age of 68, assuming annualised returns of 5%.
While the professional and personal circumstances of the £11m investor are unknown, they could expect to enjoy an eye-watering annual income of £540,000 over a 30-year retirement period and never have to worry about running out of savings.
Rob Burgeman said: “Quite how this individual built up an incredible £11m pension we will never know, but good pension planning is something everyone should undertake regardless of income.
“These days thanks to employer contributions and auto-enrolment, it’s possible for people even on modest incomes to reach millionaires’ row by the time they retire.
“The government recently announced it would be supporting a private members bill which would reduce the age of auto-enrolment from 22 to 18.
“Someone entering the workforce today aged 18 and paying £389-a-month into their pension could reasonably expect to retire with a £1million pot aged 68 assuming annualised returns of 5% after fees.
“In the first decade, the investor’s pot could grow to £60,181 based on investments of £46,680. Ten years later their nest-egg could have more than doubled in size to £158,210 based on contributions of £93,360. And after 30 years, they could have accumulated £317,889 on investments of £140,040.
“By the time they’ve clocked up 40 years in the workforce, they could be sitting pretty on a retirement fund of £577,990 based on contributions of just £186,720.
“But it’s in the last decade before retirement that the millionaire jackpot finally becomes a reality. After 50 years, the pot could well have smashed through the seven-figure mark on contributions of just £233,400.
“The figures leave little doubt that compounding can be like rocket fuel for your pension. And if you don’t live to spend it all, you can usually pass it on to the next generation without losing anything in inheritance.”
“Remember, pensions are one of the most tax-efficient ways of funding your retirement. A £10,000 contribution costs a basic-rate taxpayer £8,000, and a higher rate taxpayer just £6,000 due to tax savings.”
The ONS says the top decile of pension wealth is skewed heavily towards males (66% v 34%) and includes “some very wealthy outliers” including the £11m investor. The data comes just weeks after chancellor Jeremy Hunt formally abolished the lifetime allowance — which levied tax charges of up to 55% on pension savings in excess of £1,073,100.
Under current rules, investors can pay as much as they like into their pension each year, but contributions above the government’s £60,000 annual allowance automatically trigger a tax charge.
The ONS statisticians looked at both defined contributions and defined benefits pensions. In the case of defined benefits pensions, which offer specified payments usually linked to someone’s final salary at retirement rather than investment returns, the statisticians modelled the equivalent pot size necessary to produce that annual income.
Disclaimers
The value of investments, and any income from them, can fall and you may get back less than you invested. This does not constitute tax or legal advice. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Information is provided only as an example and is not a recommendation to pursue a particular strategy. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. Forecasts are not a reliable indicator of future performance.
RBC Brewin Dolphin is a trading name of Brewin Dolphin Limited. Brewin Dolphin Limited is authorised and regulated by the Financial Conduct Authority (Financial Services Register reference number 124444) and regulated in Jersey by the Financial Services Commission. Registered Office; 12 Smithfield Street, London, EC1A 9BD. Registered in England and Wales company number: 2135876. VAT number: GB 365 3456 40.
-ENDS-
NOTE TO EDITORS
Data covers “the expected value of any accrued private pension pots and includes modelled based estimates of any accessed or non-accessed rights to private pension income.”
The ONS estimates on pension wealth are based on 31,829 individuals.
For further information, contact:
Gary O’Shea – Senior Consultant, Powerscourt Group
Email: gary.oshea@powerscourt-group.com
Tel: 07814 658271
Richard Janes – Senior Communications Manager, RBC Brewin Dolphin
Email: richard.janes@brewin.co.uk
Tel: 0203 201 3343
NOTES TO EDITORS
About RBC Brewin Dolphin
RBC Brewin Dolphin is one of the UK and Ireland’s leading wealth managers and traces its origins back to 1762. With £53.8* billion in assets under management, we offer award-winning, personalised wealth management services from bespoke, discretionary investment management to retirement planning and tax-efficient investing.
Our qualified investment managers and financial planners are based in 33 offices across the UK, Jersey and Republic of Ireland. They are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients’ needs at the core.
As part of Royal Bank of Canada (RBC), we are now able to draw on the strength of a global financial institution to continue to improve the service we provide to our clients and drive further innovation across our business.
*as at 30th April 2023.
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