Although last month’s Budget announcement gives new retirees more choice about how they take their pension, they can still expect to see their income drop by two thirds (66%) when they leave the workplace, according to the annual ‘State of Retirement’ report from LV=.
The report reveals that while the average annual salary for the over 60s is £25,480, the average annual pension income, including state pension, is just a third of that at £8,774[ii]. This means that the average Brit retires with an annual income almost 24%[iii] less that of the minimum wage. The changes that are coming into effect 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 findings indicate that the gender pay divide that women experience in the workplace continues into retirement. The research 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[iv] compared to 60% for men.
Of those within five years of retiring, a fifth (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[v] 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 a third (30%) of working Brits aged between 60-69 years changing their retirement plans in the last twelve months. The vast majority of these (85%) say they now expect to retire later than they had planned. Looking at those aged 50-59, a fifth (17%) believe that they will have to work past the state retirement age due to financial reasons. However, it is not all bad news, as more (19%) plan to work past the state retirement age simply out of choice.
The findings indicate that working Brits are choosing to delay their retirement rather than put more money away. Over the last twelve months, one in ten (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. This equates to £535 million[vi] lost in retirement savings.
Traditionally by the time someone reaches retirement they would have paid their mortgage off and have fewer financial commitments than when they were working. However, today’s retirees are not only facing a considerable income drop when they leave the workplace, they’re also entering retirement with outstanding debts, putting pressure on the purse strings.
More than one in ten (12%) retirees have credit card debts, while 7% have an outstanding mortgage and one in 20 (5%) are overdrawn. This may go some way to explain why of those working, and within five years of retirement, more than half (58%) expect their regular outgoings to rise or stay the same when they leave the workplace.
Richard Rowney, LV= Life and Pensions Managing Director, said: “Brits 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 if now one of the biggest financial decisions you have to make.
“It’s clear that today’s retirees leave work with far more financial commitments to contend with than previous generations meaning their money has to go further for longer. Given that the age at which you stop earning a wage can have a significant impact on how much you have to fund your post work lifestyle, it is not surprising that many are choosing to delay retiring.
“The Chancellor’s latest Budget has given retirees even more choice and greater flexibility as to how they use their pension fund. Although the vast majority of people will experience a drop in income when making the transition from working life to retirement, considering all the income options available and seeking financial advice will help to ensure that retirees are able to make the most of their savings and select a solution that best suits their needs.”
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