28th March 2014
George Osborne’s Budget bombshell may well have given savers greater pensions freedom but unfortunately the vast majority will still see their income plummet, by a massive 66%, when they leave the workplace writes Philip Scott.
Insurer LV=, in its annual ‘State of Retirement’ report found that while the typical annual salary for those over 60s is £25,480, the average yearly pension income, including state pension, is just a third of that at £8,774.
As a result the average person can expect to retiree with an annual income almost 24% less that of the minimum wage.
The changes that are coming into effect, whereby no-one will have to swap their nest-egg for an annuity, will mean that the average retiree drawing their entire pension in one go will have to closely budget to ensure it lasts their lifetime.
The research also concluded that the gender pay divide that women experience in the workplace continues into retirement. The study 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 almost a third, at 30%, of working people aged between 60-69 years changing their retirement plans in the last twelve months. The vast majority of these, at 85% say they now expect to retire later than they had planned. Looking at those aged 50-59, 17% believe that they will have to work past the state retirement age due to financial reasons but 19% plan to work past the state retirement age simply out of choice.
The findings indicate that people in work are choosing to delay their retirement rather than put more 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, or £600 a year on average, equating to £535m lost in retirement savings.
Retirees are also facing a considerable debts, some 12% will retire with credit card debts, while 7% have an outstanding mortgage and 5% will be in the red their overdraft.
Richard Rowney, LV= life and pensions managing director says: “Britons approaching retirement today are under huge financial pressure, as their retirement savings are being stretched over a much longer period of time than before. Whilst undoubtedly having a longer retirement is a good thing, it means that making the right choices on how to fund your retirement is now one of the biggest financial decisions you have to make.”