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Catch up with the latest press releases from LV=

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Living costs for pensioners soar by 33% since 2000

Press release: 07/03/2012

  • Average spend for a retired couple amounts to almost £18,000

  • Single pensioner’s pay out nearly £10,000 a year

  • Pensioners spend 87% more a week than the average state pension income

  • Pensioners in the UK spend an average of £96 billion a year


A new report from retirement specialist LV= reveals retirees in the UK have experienced a 33% increase in living costs since the year 2000[1].

Research reveals the total expenditure of the UK’s 10.6 million retirees[2] equals £96 billion a year – this means on average a retired couple spends £17,922 a year and a single retiree spends £9,917 a year – or £190.70 a week[3]. With the average pensioner in the UK receiving state pension income of £102.15 a week, retirees are spending up to £88.55 a week (or 87%) more than the average state pension[4].

The biggest dent to a pensioner’s overall wallet is from food and non-alcoholic drinks, costing £1,411 annually and equating to 14% of their annual spend. The second biggest emphasis of spending is on recreation and culture – single pensioners are spending an average of £1,337 a year[5].

Bills, bills, bills…..

Pensioners are burning up a tenth (9%) of their annual spend on utilities such as fuel, water supply and electricity – they now spend £918 a year, compared with £635 in 2000[5]. Furthermore, although senior citizens receive discounted travel, the cost of transport and motoring costs (including petrol and vehicle maintenance) add up to an average annual bill of £1,217.

Cost of goods on the rise…

The cost of living has increased significantly since 2000. The biggest percentage rise on the cost of goods for pensioners has been on alcoholic drinks and tobacco which has increased by 57%. Food and non-alcoholic drinks comes second with a 45% hike.

Price increases between the years now vs 2000

Categories

Per cent change now vs. 2000

Alcoholic drinks, tobacco

57%

Food & non-alcoholic drinks

45%

Transport and motoring

44%

Housing, (Rent, maintenance, water, fuel, power, council tax)

42%

Mail and Telephone cost (incl. equipment)

38%

Health expenses

38%

Household goods & services

26%

Recreation & culture

23%

Restaurants & hotels

23%

Clothing & footwear

-8%

Average (all categories)

33%

Source: ONS/ Opinium Research 2011; Table displays changes to the average expenditure of a two-adult retired household in 2010 based on the ONS RPI Pensioner Index

Matt Trott, LV= Head of Annuities said: “Low interest rates and rising inflation has hit pensioners hard with the cost of living dramatically rising since 2000, resulting in pensioners having to significantly increase what they spend. Food, drink and bills take up a large chunk of the weekly budget, however, it’s good to see that people are able to enjoy themselves in retirement too.”

Weekly costs

Average weekly expenditure(7)

Average retiree weekly expenditure One-adult retired household

Average retiree weekly expenditure Two-adults retired household

Alcoholic drinks, tobacco

£5.30

£9.8

Clothing & footwear

£7.80

£12.90

Communication

£5.20

£7.20

Education

£0.40

£0.00

Food & non-alcoholic drinks

£27.10

£46.20

Health

£3.60

£7.10

Household goods & services

£13.40

£21.90

Housing: Net rent

£5.90

£6.60

Housing: Maintenance and repair of dwelling

£4.30

£4.80

Housing: Water supply and miscellaneous services

£4.70

£5.20

Housing: Electricity, gas and other fuels

£13.00

£14.50

Housing: mortgage interest payments, council tax etc.

£13.20

£14.80

Miscellaneous goods & services

£15.60

£27.40

Other expenditure items

£9.40

£6.80

Recreation & culture

£25.70

£57.80

Restaurants & hotels

£12.80

£33.40

Transport

£23.40

£68.60

Total Expenditure

£190.70

£344.70

Source: ONS/ Opinium Research 2011

London pensioners spend the most…

Given costs of living in the capital, it is no surprise that pensioners in London spend the most – 11% more than the average single pensioner in the UK. The average weekly spend for a couple in London adds up to £407, with single retirees spending £241[8]. The East of England follows closely behind with a weekly spend of £395 for a couple and £225 for single pensioner households. The North East ranks lowest – couple’s spend £306 while a single pensioner spends £175 a week.

Making the most of retirement savings…

With the cost of living for retirees rising it is essential that people make the most out of their pension savings as they approach retirement. There are a number of ways in which people can increase the income that they receive in retirement, including an enhanced annuity, which can provide an income of around 20% more[9] than a standard annuity if the person has certain lifestyle factors or suffers from certain common illnesses. The income received can be increased even more significantly if people have serious conditions. With inflation eating into the spending power of those in retirement pensioners can also link their annuity to inflation so that their income would track the cost of goods if they continue to rise.

Matt Trott continued: “Being a retiree in the UK doesn’t come cheap and people approaching retirement need to look at their retirement income options early, to ensure they get the most out of their savings to maintain a good quality of life in retirement. There are a variety of options available, including annuities, pension drawdown and releasing equity from a property. For many people an annuity will be the most appropriate choice, but this is a big decision, as you can’t change your mind or get your money back once you’ve signed on the dotted line.

“Making the right decision about an annuity can affect the income you receive for the rest of your life, so it’s important not to just accept the first offer you receive from your pension provider, and instead talk through the many different options available with an expert first.”

LV= has launched a website to give consumers information about the value of enhanced annuities at www.enhancedretirement.co.uk.


Notes

Research conducted in February 2012 on Retirement expenditure was done by Opinium Research based on the latest available ONS data on pensioner expenditure from the Family Spending Survey 2011, published November 2011.

  1. Based on the average expenditure across a lifetime of a pensioner, taking into account two age bands 65-74 and 75+ and the effect of single versus couple pensioner households

  2. Source: Office for National Statistics, 2011

  3. These calculations are based on the annual expenditure average over a lifetime of a pensioner taking into account two different life stages (age bands 65-74 and 75+) and the effect of retired-single versus retired-couple households; the number of single retired households in the UK aged 65-74 years stands at 4.9 million individuals (based on average 1.7 persons per 3.4 million pensioner households) while those aged 75+ years are estimated at 2.1 million individual pensioners (based on average 1.3 persons per 3.5 million pensioner households in this age band) – equating to a total of 7.1 million single pensioner households; the remainder of 3.5 million individuals (out of a total of 10.6 million UK citizens aged 65+) is living in couple households across those two age bands

  4. Not taking into account additional benefits and any pension credits receipts

  5. This category includes various items such as major durables for recreation and culture (audio equipment, etc), equipment for gardens and pets, any recreational and cultural services, newspapers, books and stationery but also package holidays and any visual, photographic and information processing equipment

  6. RPI and not CPI, the Consumer Price Index, is used in this instance as RPI includes housing costs such as mortgage interest payments and council tax, whereas CPI does not; The ONS definition of a “Pensioner household” is where the head of the household is retired (at least 65 years of age for men and 60 years or more for women) and economically inactive, and where at least three quarters of the household's income is from state benefits. For 2 pensioner households the other person is not necessarily retired; The weights for the original RPI explicitly exclude LCF data on households where the head of the household is retired (at least 65 years of age for men and 60 years or more for women) and economically inactive, and where at least three quarters of the household’s income is from state benefits; For more explanation and the complete outline of the methodology, see the ONS Technical Manual, here: http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices---technical-manual/2010-edition/index.html (Retrieved: February 2012); For figures on house ownership amongst pensioners, see ONS Housing Statistics, here: http://www.ons.gov.uk/ons/publications/re-reference-tables.html?edition=tcm%3A77-218733 (Retrieved: February 2012)

  7. Table displays the average weekly expenditure over an average 15-year life span (State pension age of 65 years to average life expectancy of men/women in the UK of 80 years) based on two age bands, those pensioners aged 65-74 years old and those 75 years and older, furthermore taking into account the effect living as a couple has on expenditure

  8. Within the age band 65 – 74 years old

  9. Source: The Exchange


About LV=

LV= employs 5,000 people and serves over five million customers with a range of financial products. We are the UK's largest friendly society and a leading financial mutual.

When we started in 1843 our goal was to give financial security to more than just a privileged few and for many decades we were most commonly associated with providing a method of saving to people of modest means. Today we follow a similar purpose, helping people to protect and provide for the things they love, although on a much larger scale and through a wide range of financial services including insurance, investment and retirement products.

We offer our services direct to consumers, as well as through IFAs and brokers, and through strategic partnerships with organisations such as ASDA, Nationwide Building Society and a range of trades unions.

LVFS is authorised and regulated by the Financial Services Authority, register number 110035. LVFS is a member of the ABI, the AFM and ILAG. Registered address: County Gates, Bournemouth BH1 2NF.