22nd April 2014
Despite last month’s Budget providing savers with far more choice in regards to how they use their pension pot retirees can still expect to see their income collapse by two thirds when they leave the workplace writes Philip Scott.
Insurer LV=, in its annual ‘State of Retirement’ report, found that while the average annual salary for the over 60s is £25,480, the typical pension income including state pension, is a mere third of that at £8,774, meaning many retirees will have an annual income almost 24% less than the minimum wage.
The report’s findings indicate that the gender pay divide that women experience in the workplace also continues into retirement. The research suggests that women will have to survive on an annual income that is up to 40% less than the average man’s retirement income with women receiving £6,580 and men receiving £10,967 a year. This equates to a weekly income of £126 and £211, respectively, and an income drop of 68% for women compared to 60% for men.
Of those within five years of retiring, a fifth, at 19%, of women do not have any private pension savings at all and will rely solely on the state pension, compared to 12% of men. The lack of private pension savings means this group will see their income fall by 78% as they potentially have to live on a ‘pension wage’ of just £110 a week.
The challenge of funding a post-work life on a small pension has clearly been realised by those nearly at retirement with a third of working Britons aged between 60-69 years changing their retirement plans in the last twelve months says the report, with the vast majority saying they expect to retire later than originally planned.
Of those aged 50-59, almost a fifth, at 17%, believe that they will have to work past the state retirement age due to financial reasons however 19% plan to work past the state retirement age simply out of choice.
The findings also indicate that workers are not only opting to put their retirement on hold but also put less money away. Over the past year 10% have actually decreased the amount they are putting away for retirement by an average of £50 a month, equating to a collective £535m lost in retirement savings.
In addition, the report highlights that 12% of retirees have credit card debts, while 7% have an outstanding mortgage and a further 5% are overdrawn.
Richard Rowney, LV= life & pensions managing director, says: “Brits approaching retirement today are under huge financial pressure, as their retirement savings are being stretched over a much longer period of time than before.
“It’s clear that today’s retirees leave work with far more financial commitments to contend with than previous generations meaning their money has to go further for longer. Given that the age at which you stop earning a wage can have a significant impact on how much you have to fund your post work lifestyle, it is not surprising that many are choosing to delay retiring.”