Research from pensions and retirement specialist LV= highlights how the coronavirus pandemic is disrupting the UK’s retirement plans.
The LV= Wealth and Wellbeing Monitor* - a quarterly survey 4,000 UK consumers – indicates that more than 154,000** people aged 55-64 have opted for early retirement because of redundancy and reduced income, a desire to reduce their risk of exposure to covid or the pandemic has made them reassess their priorities in life.
“Early retirement is a dream for many people but it can become a financial nightmare if it is forced on people without them having time to prepare.”
The LV= survey reveals people are unprepared for retirement and that retiring five years early can significantly reduce an income in retirement.(See worked example)
The LV= research (among those who were still working at the start of 2020) reveals:
The research highlights how unprepared people are for retirement. Only a small proportion have looked at their pension value in the last year or researched how much they need to enjoy the retirement they want.
The LV= research of UK non-retired adults reveals:
“Early retirement is attractive for many people – but it can become a financial nightmare if it is forced on people without any planning because of redundancy or illness.
“Your 50s are critical years for retirement planning because that is the age when many people’s earnings and pension contributions peak. Being forced to end a career before you planned will disrupt retirement plans. Many will opt for early retirement and accept a lower income in retirement while others will switch to lower paid work and delay their retirement.
“Early retirement is expensive. Stopping work five years early means five years’ fewer contributions into a pension, five years’ fewer compounding of returns on your retirement fund and an additional five years withdrawing money from your pension.
“People who want to retire early and enjoy the retirement lifestyle they want need to do three things: review, plan and save. They need to check how much they have saved, plan when they want to retire and save enough to enjoy a comfortable retirement.
“It is a complicated financial decision and people considering it need to do a lot of planning and research so that they understand the pros and cons. (See tips below). Consulting a qualified financial adviser will help you develop a sustainable retirement plan while referring to the Money Helper will help people understand their options.
“Retirement can last a long time, maybe 35 years or longer, so it is important to think ahead to fund the lifestyle you want without running out of money or incurring unnecessary tax bills.
“Younger people with many years to retirement should make sure they join their employer’s pension scheme and save as much as they can. Older people should review how much their pensions are worth, how much they need to enjoy a secure retirement and what they need to do to enjoy the retirement they want.”
How retiring five years early can affect your retirement income
Pensioner aged 60 is planning to retire at 65. He earns £45,000pa, his pension fund is worth £250,000 and his total pension contributions are 10%.
By 65 his fund size would have grown to £329,000 and he could have drawn an income of £18,700 per year to last over 30 years till he was 95.
But at 60 he is made redundant and decided to retire. His fund needs to last 35 years until 95.To ensure his fund lasts he will have to reduce pension drawdown by £5,500 a year to £13,200 a year.
Example assumes: Pensioner dies at age 95. Net fund growth is 4%pa. No tax or inflation assumed on income. He draws down £13,200pa from age 60.
Notes to Editors
*LV= surveyed 4,000 nationally representative UK adults via an online omnibus conducted by Opinium in December 2020.
**ONS data indicates 12.2% (6.4 million) of UK pop are 55-64. Some 75% (4m) in our survey said they were still working at the start of the year and 3% (154,000) of these retired early