As the UK sees in 2017’s Pensions Awareness Day, Retirement Advantage warns of a massive gap between the income retirees say they need to live on and the amount the average person will receive.
According to new research carried out by the retirement income specialist, people over 50 in the UK say they need an average of £1,435 a month to live on in retirement. However, based on an average saved pension pot of around £70,000 and a state pension of just under £160 per week, the research has highlighted a shortfall in income of £444 per month.
Andrew Tully, pensions technical director at Retirement Advantage, said: ‘There is a huge gap between the income people say they’re going to need in retirement and the amount they will actually get. Some people may be lucky enough to have a mix of savings, a final salary benefit and other pensions. But others may well be significantly adrift of what they say they need and in the process we head towards creating a generation of pension castaways. Bridging this gap would require the average worker to save an extra £100,000 throughout their working lives. It’s crucial that Pensions Awareness Day helps raise these issues.’
The annual shortfall in income of £5,328 will be a concern to the individuals who find themselves around a third short of where they need it to be. Retirement Advantage stresses that people must either be prepared to work longer, reign back their expectations of life after work or be more resourceful in the way they approach their finances.
Andrew Tully added: ‘As an industry we often talk about the savings gap but the message doesn’t appear to have landed with everyone, especially the savers looking to retire in the near future. These folk will have to make some tough choices if they want their retirement income expectations to match reality. They can choose to work longer, thereby maximising savings and shortening the period the pension will need to last. They can save more whilst working of course, but people find it difficult to think about their financial futures and plan appropriately. Or, they can look to other stores of wealth such as their property and explore ideas such as equity release.
‘Another option might be for people to keep their pension savings growing after retirement. Although many retirees with smaller pension pots continue to purchase a guaranteed income using an annuity, there is the option to keep money invested and draw income as and when needed. You can also mix and match your approach by choosing both an annuity and using income drawdown. Retirement finances can be a complicated business so to ensure your plans are on track we would always suggest using a regulated financial adviser to work through the options.’
Pensions Awareness Day takes place on the 15th of September. More details can be found at www.pensionawarenessday.com