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New retirees see income drop by two thirds

Press release: 22/04/2014

  • The average annual income drops by two thirds (66%) upon leaving the workplace
  • A fifth of women within five years from retirement have no pensions savings and will rely solely on the state pension
  • A third (30%) of women over 50 expect to have to work longer than previously anticipated, compared to a quarter (23%) of men
  • Average Brit retires with an annual income almost 24% less than the minimum wage
  • One in 10 (12%) retirees have outstanding credit card debt, 7% have an outstanding mortgage and 5% are overdrawn

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 retirement specialist LV= [1].

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 [2]. This means that the average Brit retires with an annual income almost 24% [3] 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 [4] 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 [5] 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 [6] 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.”

For further details, log on to http://www.lv.com/retirement-plan.

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For further information please contact:

Addy Frederick, addy.frederick@LV.com, 020 8256 6909 / 07500 171810
Paula Nugent, paula.nugent@LV.com 020 8256 9367 / 074 4250 5877

Notes to editors:

The State of Retirement research was carried out by Opinium Research from 28 Feb to 10 March 2014. The total sample size was 1,538 British adults over 50 and was conducted online. Results are weighted to a nationally representative criteria.

About LV=

LV= employs 5800 people and serves 5.5 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 trade unions.

Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. LVFS is a member of the ABI, the AFM and ILAG. Registered address: County Gates, Bournemouth BH1 2NF.

  1. According to Nelson Research the median total private pensions wealth per person is £64,000. The average person will retire at 65 and live until the age of 83, according to ONS. Assuming that someone takes 25% (£16,000) of their pot tax free they will receive £54,978 divided by 18 = £3,054. Plus the annual state pension of £110 per week x 52 weeks = £5,720. £3,054 + £5,720 = £8,774. The average final salary according to Annual Survey of Hours and Earnings (ASHE) at the age of 60 is £25,480. Based on an annual salary of £25,480 divided by 52 gives a weekly figure of = £490. £490 minus £169 = £321 divided by £490 x 100 = 65.5 or 66%. NB The state pension figure is based on current allowances and does not take into account inflation after the first year. Please note that the figures for both pension and salary have not been taxed.
  2. The average final salary according to Annual Survey of Hours and Earnings (ASHE) at the age of 60 is £25,480. According to Nelson Research the median total private pensions wealth per person is £64,000. The average person will retire at 65 and live until the age of 83, according to ONS. Assuming that someone takes 25% (£16,000) of their pot tax free they will receive £54,978 divided by 18 = £3,054. Plus the annual state pension of £110 per week x 52 weeks = £5,720. £3,054 + £5,720 = £8,774. NB The state pension figure is based on current allowances and does not take into account inflation after the first year. Please note that the figures for both pension and salary have not been taxed.
  3. Currently the minimum wage is £6.31 and on average 35 hours of work are completed to constitute as ‘full time.’ 35 hours x £6.31 x 52 = £11,484.2 per year. This is a 24% drop compared to £8,774.
  4. The average income for men aged 60 and over is £27,430 and for women aged 60 and over it is £20,810, according to the Annual Survey of Hours and Earnings 2013. The income drop is therefore 60% for men and 68% for women based on a pension wage of £10,967 and £6,580 respectively.
  5. The Government is set to introduce a flat state pension in April 2016 the value of which is yet to be confirmed. The figures in the release assume that the respondents retire and receive the current state pension which is £110.15 a week. The current salary, according to ASHE (Annual Survey of Hours and Earnings, 2013) for those aged 60+ = £25,480. 110 x 52 = £5,720 per year for pension wage compared to final salary of £25,480. This represents a 78% drop.
  6. According to Opinium, 892,400 adults aged 50 and over (and not yet retired) have cut back on their retirement savings by £50 per month. 50 x 12 x 892,400 = £535,440,000 or £535 million.