Andy James, head of retirement planning, Towry:
According to research by the Institute of Fiscal Studies (IFS) - the vast majority of couples born in the 1940s are maintaining living standards in retirement. In fact nearly half enjoy a greater income than average real earnings.
The study looked at the income and wealth of couples at retirement compared with earnings when they were between the ages of 20 and 50. It found that 80% had income at age 65 from state and private pensions that was at least two thirds of their average real working life earnings and in fact 40% enjoyed incomes higher than their average real working life earnings.
With most economists believing that a two thirds benchmark maintains retirement living standards when taking into account the reduced outgoings on children, mortgages and savings contributions, this level of income will leave most couples handily placed. Once housing wealth is added in, reflecting the large gains made by those who first purchased in the 1970s and 1980s, the average surplus wealth is £220,000.
According to the IFS it would seem that 92% of couples born in the 1940s have accumulated more wealth than they need to maintain their standard of living throughout their retirement, and even ignoring housing wealth, 75% are still in this position. This is unsurprising as these individuals are still benefitting from the regular increase in state pensions which are protected by the ‘triple lock’ where the government have guaranteed increases in line with the higher of inflation, earnings or 2.5%, and many will also be getting final salary pensions which are also inflation proofed.
Whilst it would seem that the main problem for these retirees will be around estate planning and looking to reduce their inevitable inheritance tax bill, and certainly those who have not made plans should consider advice sooner rather than later, for the next generation coming through who are likely to still be experiencing little or no wage growth and large mortgage payments the story is probably going to be somewhat different.
A recent Office of National Statistics (ONS) survey - has found that 45% men and 49% of women below retirement age have no private pension arrangements whatsoever. The average wealth of this group is a mere £23,900, compared with £160,000 for those with pension provision.
A longer working life and diligently paying into money purchase pension arrangements and other savings vehicles is going to be the route for many. It will be important for this group to make sure that any cash that is saved up works as hard as they do. Failure to do so could lead to working life continuing well beyond the state retirement age.
The country as a whole will be poorer in the future if we haven’t got wealthy pensioners still spending. Getting the next generation to a comfortable retirement is something that will be important for everyone. Ensuring that this group get advice on using tax allowances and tax favoured investments can ensure that money is put to work as best it can be!
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