20th August 2014
People turning 65 this year can expect to average nearly 20 years in retirement, according to new analysis published today by Prudential*.
The firm’s analysis of the Office for National Statistics estimated life expectancy data shows that someone who celebrates their 65th birthday in 2014 can expect to live to nearly 85 years of age.
Earlier this year, Prudential’s Class of 2014 retirement research identified that people retiring in 2014 have an average expected retirement income of £15,800. Prudential has estimated that someone qualifying for the full State Pension will need a pension pot of approximately £121,000** to secure a total annual retirement income of £15,800 for 20 years, made up of a combination of ‘income drawdown’ and the State Pension.
However, with a 20 year retirement now the average, a significant number of retirees may live for many years longer. Prudential has calculated that someone who qualifies for the full State Pension and expects a total annual income of £15,800 will need an estimated pension pot of approximately £139,000** to fund their retirement through drawdown and State Pension for 25 years.
Using the same assumptions, someone retiring in 2014 and living for another 30 years will need a pot of around £154,000**.
Vince Smith-Hughes, retirement income expert at Prudential, says: “The changes to pensions, savings and the rules around taking a retirement income that were announced in the Budget in March are good news for savers and retirees because they now have more choice. However, these new figures underline the importance of making retirement income decisions that address the risk of outliving your savings. If retirees choose to draw income directly from their pension fund, they need to consider if it’s sustainable to take that level of income over an extended number of years.
“It is also important for people not to overestimate the value of the State Pension as a fall back should they exhaust their retirement pot. The State Pension alone is well below the income level most people estimate they’ll need for a comfortable retirement.
“When planning finances for life after work and especially securing a retirement income, a consultation with a professional financial adviser or retirement specialist can help people to make the most of their options. And of course, the best way to secure a comfortable retirement is to save as much as possible as early as possible in your working life.”
Prudential’s analysis also highlighted how the average length of expected retirement varies significantly across the UK. The borough of East Dorset, which has the sixth highest retired population in the country (28 per cent of all people in the area), has the joint longest expected retirement alongside the London Borough of Harrow, where 65 year olds can expect to live for another 22.3 years.
Christchurch, which has previously been identified by Prudential as home to the highest proportion of pensioners in the country (30 per cent), also has a significantly higher expected length of retirement, at 22 years, than the national average.
Areas with longest expected retirements, based on life expectancy at 65
|Area Name||Life expectancy at age 65|
|Kensington and Chelsea||22.1|
* Figures based on Prudential analysis of ONS figures for non-gender-specific period life expectancies at birth and at 65.
** Calculations based on Prudential’s own internal modelling. Assumptions made include:
– The individual qualifies for and receives the full weekly State Pension on top of any income provided by pension savings.
– Prudential Flexible Retirement Plan charging structure (income drawdown).
– Figures based upon expected growth rate of Prudential PruFund Growth fund.
– Income escalates at 2.5%.
– Client dob 01/06/1949.
– Tax free lump sums are dealt with as follows: it is assumed that the individual has either chosen to take no lump sum at retirement or that they have taken the lump sum and it will provide no income in retirement (in this case the pot size quoted is net of the lump sum).