Personal Pension  

Retirement income up but less will go to retirees

Retirement income up but less will go to retirees

While expected retirement incomes in the UK this year have hit a six-year high, more than one in four expect to come under pressure to lend their family money from unlocked pension pots come April, two separate pieces of research released today (14 January) have found.

A survey commissioned by Prudential - carried out by Research Plus among 7,687 UK non-retired adults aged 45 and over, including 1,012 intending to retire in 2015 - found that the ‘class of 2015’ will be nearly eight per cent better off than those who stopped working in 2014.

The increase equates to an average expected annual retirement income of £17,000 per year – on average more than £1,200 higher than last year’s retirees.

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While retirement incomes are rising, they are still £1,700 a year lower than the £18,700 expected by the pre-crash ‘class of 2008’.

Vince Smith-Hughes, head of business development for retirement income at Prudential, said that the challenge for providers and advisers is to help these pensioners to plan properly in order to benefit from the new freedoms and secure the best retirement income arrangement to suit their needs.

“The rule changes don’t alter the basic principle of needing to secure an income that will last throughout retirement. Consulting a financial adviser or retirement specialist well before giving up work can help savers to manage their retirement income expectations appropriately.”

Meanwhile, Scottish Widows’ think tank the Centre for the Modern Family commissioned YouGov to interview a nationally representative sample of 2,082 UK adults, with results showing that 23 per cent expect to use pension savings to fund care costs of elderly relatives or to invest on behalf of the wider family (22 per cent).

Some 23 per cent believed that the at-retirement reforms will enable people to manage savings more effectively, although they were outnumbered by the 39 per cent who worried that the changes could mean not having enough money for the whole of their retirement.

Scottish Widows’ research found that the pension flexibilities may be particularly burdensome on those with adult children still living at home, or ‘full nesters’, with 25 per cent thinking they will come under pressure to use any pension savings not spent on an annuity to fund care costs of elderly relatives, compared to 19 per cent of empty nesters.

Carolyn Fairbairn, chair of the Centre for the Modern Family, commented that although for many the reforms will represent greater autonomy over how to use their savings in later life, it is important to consider the knock-on effects on families.

“It is vital people are aware of all the short and long-term implications for retirement pots, and for policy makers and insurance companies to help people make an informed decision about how to best use their savings and manage their income in retirement.”