New research from Partnership reveals that some people will be planning their later life finances on false premises around their assets and longevity.
Issues Facing Pensioners – Asset Optimism:
Indeed, when asked how much they would have in their pension pots when they retired, the average person between the ages of 45 and 70 said £76,406 – despite 18% admitting to having no work pension and 33% having no private provision.
While some may have a pension pot worth this amount, with the typical pension pot used to purchase an annuity sitting at £34,000, many are likely to be over optimistic about their savings. Especially the younger age groups with those aged 45-50 believing they will have £78,762 in their pension pot (work and private) when they retire although 66-70s year olds saying that £72,566 is more realistic.
Those in London (£105,670) and the East of England (£98,325) are most optimistic about the size of their pension pots compared to Northern Ireland (£56,250) and Yorkshire & Humberside (£63,406). [See table in notes to editors for full details].
Issues Facing Pensioners – Retirement Length Pessimism:
While people appear to be over optimistic about their assets, there is a fundamental misunderstanding about the length of time that they will spend in retirement.
The typical 45-70 year old believes they will spend 16 years in retirement if they finish work when they are 65 but longevity statistics suggest that men will live 18.3 years and women 21 years. This suggests that there is a significant potential for people to underestimate how long their retirement savings need to support them.
The average estimate from men and women in the East of England was 15 years, compared to the actual averages of 19.1 years for men and 21.5 years for women. In Northern Ireland the average estimate of 14 years contrasts with an actual expectancy of 17.8 years for men and 20.5 years for women. A significant level of underestimation occurred throughout the country, with possibly profound implications for pension planning as people have more flexibility in the choices they make [full table in notes to editors].
Partnership has launched the Enhanced Choice Annuity to help those people with a health or lifestyle condition who may traditionally have bought an annuity but don’t currently wish to fully commit to purchase prior to the introduction of the new pension regime. This product will give them a guaranteed income for life with access to their tax-free cash at outset but also gives them the option to cash in and take another option at the first anniversary if they decide there is a more appropriate option or if their circumstances have changed.
The Enhanced Choice Annuity is fully underwritten so those with health conditions can still benefit from higher rates of income that are guaranteed for life if they choose to stay with the product after the first year [click here for further information].
Andrew Megson, Managing Director of Retirement, Partnership said:
“While many people have been successfully managing their finances throughout their working lives, making choices at retirement requires a slightly different set of skills. Not only do they need to have an accurate and honest view of just how much their pension assets are worth but also determine how long these need to last in order for them to enjoy a good standard of living in retirement.
“Choosing to spend too much each year can result in people spending their final years struggling to survive while spending too little means that they may enjoy a poorer quality of life than they deserve. We firmly believe that for the estimated 50% of 65-year olds who have a health or a lifestyle condition that makes them eligible for an enhanced annuity – these products offer good value and the security of knowing that no matter how long you live, you will always have a guaranteed income.
“However, with the recent changes announced in the budget, we also understand that people may want to wait and see what happens when these rules are introduced so we have launched the Enhanced Choice Annuity. This is a lifetime annuity with a break-clause at the one-year anniversary which allows people to access their 25% tax-free cash and gain a guaranteed regular income while at the same time keeping their options open should something more suitable for their individual situation become available.”
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