Rising costs of living will eat into people’s pension pots more than expected, putting them at risk of insufficient income in later life, the managing director of retirement for Partnership has said.
Andrew Megson said: “Not only do people need to save more, but they need to carefully budget their retirement income. While most employed people have some expectation that their income has the potential to rise in the future and budget accordingly, retirees are asked to guess what level they need their income to be for the rest of their lives.”
He said it is sensible for people to get advice about how to cover their essential costs; although there is no compulsion to buy an annuity after April 2015, the guaranteed income could provide a cost-effective way for some people to protect their income.
Mr Megson pointed to research conducted among 1,500 people aged 40 to 70. Based on their expectations, Partnership found that, to meet their costs while enjoying some discretionary expenditure, retired people needed a take-home income of £14,631 a year.This is £1,625 above the typical UK pension income (£13,006) and suggests that many may need to cut back in order to meet regular bills.
Those aged 40 to 50 believed they needed the most (£17,549), followed by those aged 66 to 70 (£14,112). Those about to retire (61 to 65) believed they needed the least (£11,568).
Adviser view
Robin Keyte, director of Taunton-based Keyte Chartered Financial Planners, said: “People should do cashflow forecasts, and plug in five years or so of care costs, to see how long their pension needs to last. People tend to make intelligent decisions, but it is right that clients should put themselves in a position where they can make informed choices.”
Region | Actual income | ‘Required’ income |
East | £13,213 | £13,855 |
London | £14,062 | £15,785 |
East Midlands | £12,493 | £14,871 |
West Midlands | £12,447 | £13,889 |
North West | £12,412 | £13,205 |
North East | £12,337 | £13,041 |
Scotland | £12,805 | £18,238 |
South West | £13,816 | £11,889 |
South East | £13,578 | £14,772 |
Wales | £12,585 | £15,580 |
Yorkshire | £12,361 | £11,864 |
Northern Ireland | £11,754 | £13,546 |