Today’s retirees have key misunderstandings around which retirement options offer guaranteed, secure income, according to research by Fidelity Worldwide Investment.
Independent research commissioned during May amongst 1,014 UK adults aged over 55 found that while 47 per cent prioritised security of income until death when investing retirement savings, only 39 per cent would look to an annuity for their basic, essential living expenses.
Instead, over half (52 per cent) thought that savings and investments would be able to fulfil the role of lifetime secure income with 13 per cent believing a reliable source is some form of employment and the remainder looking to various investment sources or family members.
Over 55s viewed accessibility as the second most important factor (38 per cent) when securing an income for life, suggesting the concept of security is very closely linked with the ability to literally get hold of monies, explaining why investments and savings score more highly and a ‘tied up’ option such as annuities are valued less.
Perhaps unsurprisingly, 88 per cent of respondents will use their state pension, although even if the average retiree qualifies for full flat rate of £155 a week, this still leaves a shortfall, as the average respondent estimated just their essential out-goings alone will cost £755 a month.
With figures from the Department for Work and Pensions showing that only 45 per cent of those retiring between 2016-2020 are set to qualify for the full State Pension amount, retirees will need to find other sources of secure income to cover their everyday costs, according to Fidelity.
Richard Parkin, head of retirement at the firm, said there is some misunderstanding as to what a guaranteed income actually constitutes.
“When all else fails, retirees should always know that they can keep food on the table and maintain the roof over their head which can only be achieved with securing a guaranteed income for life.
“As it stands, only annuities, DB schemes or the state pension fulfil this criterion.”
He added that once people know the basics are covered, it’s only then that they can invest the remainder in a meaningful fashion, taking sensible risk through a diversified portfolio.
peter.walker@ft.com
