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Posted 26 April 2017

State of Retirement: Are you spending enough time planning for retirement?

The first chapter in the annual State of Retirement report outlines typical financial situations for retirees, before and at retirement age. New research from LV='s report, which will be published in full in the summer, found that over 45’s are spending longer planning a holiday than their retirement.

Image of clock with statistic that people spend two hours longer planning for a holiday than their retirement

Since the pension freedoms in 2015, you now have more flexibility and choice when it comes to your retirement options. However, the increasing amount of choice has caused confusion and means people need to start thinking about and planning their retirement earlier.

However, new research from LV= found those people approaching the minimum retirement age of 55 [1] are spending worryingly little time thinking about their retirement options.

LV= found 51% of respondents aged 45-54 didn’t think about their retirement at all last year. Those that did, spent more time planning a holiday than their retirement. They spent an average of three hours and 42 minutes planning their retirement, compared to five hours 42 planning a holiday. People even spent longer planning for redecorating a room than their retirement - which came out as five hours 6 minutes.

Saving for your retirement

The research also found 62% of 45-54 year olds don’t know how much they have saved for retirement.

If people were to spend more time planning for their retirement (than perhaps organising a holiday) it might put them in a better position to understand whether they are saving enough of their hard-earned money to live off in their retirement years.

Of those surveyed who are aged 50 and over, will on average expect to need around £1,360 a month to live comfortably in retirement, but this means someone retiring at 55 would need to have around £311,000 [2] saved, assuming they qualify for the full state pension. The average pension saving for those surveyed aged 45-54 is £71,342 and 39% of those have less than £50,000 and 13% have nothing at all.

Tackling the lack of awareness

LV= is calling on the Financial Conduct Authority and The Pensions Regulator to require all pension providers to include a standardised summary sheet with annual pension statements.

Average pot size imagery with piggy banks and statistics from article

The sheet would include key information on your pension pot and illustrative examples of how much monthly income your pension could provide in the future if taken as guaranteed or flexible income. It could also show you how much the majority of people need at retirement, in their pension pots and investments, to be able to live comfortably during their retirement years.

LV= believes this would help to raise awareness about how much money people need to have saved for retirement, and therefore help people to better understand all their pension options.

We urge anyone approaching retirement to check their pension pots annually, and consider using a professional financial adviser to help them make a plan. From 2019, the Pensions Dashboard will be crucial in helping people better understand their financial situation by allowing people to view all their pensions in one place but this will still require consumers to log on to the system. We also want the regulators to make pension providers send examples of future monthly income to consumers annually so people are encouraged to plan more.

John Perks, Managing Director of Retirement Solutions at LV=, said:

Download our State of Retirement: Chapter 1 infographics to see some of the key statistics.

Top tips to help you make a retirement plan:

If you’re approaching retirement, we've put together some top tips to help you get organised and start planning for your retirement.

  • Consider consolidating – If you have more than one pension pot, why not bring them all together? You could get a better investment performance. Read more on our pensions pages.
  • Check your other assets – If you make a list of your other savings and investments, this might help you understand how much you have to fund your retirement.
  • Financial advisers – Why not consider speaking to an authorised financial adviser? Regulated financial advice is the best way to help you make the most from your savings.
  • Review the state pension - It's unlikely that this will be enough to see you through retirement on its own, but it will help. So keep up to date with the state pension.

Sources

[1] 55 is the earliest age at which people are able to access their pension. The average age of those who say they plan to retire within the next 6-10 years is 49 years old and FCA data showed 40% of people who accessed their pension pots between July-September 2016 were aged 55-59.

Methodology for consumer survey: Opinium, on behalf of LV=, conducted online interviews with 2,404 UK adults between 12th and 27th March 2017. Data has been weighted to reflect a nationally representative audience.

[2] Methodology for retirement income: LV= calculated the size of pension pot needed to give someone in good health a monthly income of £1,361 (or annual income of £16,332) from the age of 55 until death, and 65 until death, including the full state pension. To provide a guaranteed income between 55 and 65, LV= calculated the pot size needed to purchase an LV= Protected Retirement Plan over 10 years. To provide an income after 65, once the state pension kicks in, three comparison annuity quotes were produced with major providers for someone retiring at 65 and an average figure was taken for each. All quotes are gender neutral and assume a single life annuity with no death benefits. Total pot size required at age 55. LV= Protected Retirement Plan pot of £153,000 and at age 65 Annuity pot of £158,000 = £311,000. All figures based on quotes dated 19/04/2017.

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