Frank O'Donnell

The latest warning that comes from the Institute of Financial Planning that there is hardly a day goes by without someone telling us that we are all heading for disaster unless we save more for retirement. Morningstar is running polls for the IFP and the most recent reveals – as many other polls have shown – that 77% of participants do not have a clear idea of their retirement needs and 74% do not believe their savings plan is set to achieve their financial goals.

A person earning the average wage* of around £30,000 a year with a typical £100,000 mortgage and running a car, is left with just under £10,000 a year to live on after tax, National Insurance and inescapable household outgoings.

If the breadwinner has a family, they will of course be eligible for Tax Credits and Child Benefit but even if you take this into account, it is difficult to see how the family can keep its head above water – let alone save the required 15% of gross earnings every year in order to provide a decent pension.  Another £4,500 deducted from the net earnings listed below would mean the family would not be able to afford even the basics such as food and commuting costs.

Maximum tax credits for a family of four with two children work out at around £6,590 a year.  But even if the family were entitled to the maximum (which they wouldn’t be) millions of families are trying to make ends meet on disposable income of just over £16,000 a year out of which they have to pay for food, clothing, school uniforms, telephones and broadband, holidays and the odd treat.  Millions more are even worse off because the earn less. 

Figures from National Statistics show that in 2008 the average spends per week were £459 or £23,868 a year.  But this includes totally unrealistic costs of just £2,500 a year for housing including household bills and the same amount for food.  Most families with two children would undoubtedly spend more near £5,000 a year, or £100 a week on food for a family of four and there aren’t many people paying £50 a week for mortgage plus gas, electricity and water.  You couldn’t even rent a room in a shared flat for £50 a week.  The figures do not take into account of council tax, which comes out of taxed income.

Average Household Costs (Three bedroomed terrace house)

Gross Earnings    £30,000

Less:   

Tax    £4,793

National Insurance        £2,866

Mortgage – (£100,000 at 4%)    £4,000

Council Tax – (average Band D)    £1,414

Electricity    £1,023

Gas    £768

Water    £344

TV Licence    £142.50

Car running costs including petrol    £4,594 

Household building and contents insurance    £200