18th March 2013
The British are counting on state benefits and part-time work to fund their retirement, and almost half of pre-retirees admit they currently save nothing for retirement. This comes despite the fact that two-thirds expecting to rely on a pension for income, according to the latest research from J.P. Morgan Asset Management (JPMAM).
When asked what their expected sources of income will be, the results reveal more than two-thirds or 64 per cent expect to use a pension for income in retirement, while 47 per cent say they will use state benefits, a figure significantly up from 29 per cent in 2006.A quarter say they will work part-time. Twenty one per cent expect to use other investments as a source of income in retirement down from 41 per cent in 2006 while 14 per cent will rely on inheritance and 14 per cent on downsizing their home. Five per cent say they will use equity release. The research found 71 per cent of men expect to use a pension as their income compared with 58 per cent of women, with a higher percentage of females relying on their spouse/partner to support them 22 per cent of women compared with 15 per cent of men.
When asked how much of their income they are currently saving towards a pension, the nation’s average is just three per cent. Half of pre-retirees surveyed say they are saving nothing at all for their retirement (52 per cent of women and 39 per cent of men). Just six per cent of those polled save more than one-tenth of their income.
When asked what level of pension income they expect to receive in retirement, 53 per cent say less than 40 per cent of their final pre-retirement salary. The average pension income people are expecting to receive is 37 per cent. Taking the national average salary of £26,500 this would be £9,805 a year in today’s money. Overall, the expectation is higher among males than females – men believe they will receive 40 per cent of their final salary as a retirement income compared with one-third of final salary for women.
Keith Evins, Head of UK Funds Marketing at J.P. Morgan Asset Management, said: “If ever the nation needed a wake-up call to start planning and saving for their long-term financial future and retirement then this is it. Worryingly, every second person is saving absolutely nothing for their retirement, yet on average people are expecting to retire on 37% of their final pre-retirement salary. Sadly, the numbers just don’t add up.”
Respondents were also asked what size pension fund they would need to generate a pension income of £25,000 a year, and awareness is low – 63 per cent of UK adults admit they don’t know rising to 66 per cent among those aged 55 or older. On average people believe that to generate an income of £25,000 per annum they need £380,061. This sum is higher among those who are 55 or older, with a mean answer of £476,550, compared with £289,216 for those who are aged 18-34. At current annuity rates (sourced from find.co.uk at 11 March 2013), a 65-year-old with no health problems would need a fund of around half a million pounds to secure an annuity of £25,000.
To help people take action JPMAM recommends adopting a ‘Five A Day’ style five-step process to help with identifying financial priorities and then financial planning.
JPMAM’s financial ‘Five A Day’:
1. Arrange life / income insurance
2. Build a rainy-day cash fund
3. Pay off expensive debt
4. Use tax-efficient allowances to start saving for the long term in an ISA and/or pension
5. Review your position regularly
Evins adds: “The situation is a worrying one, but people should not necessarily panic. My advice is to take a step back from the situation and start saving for the long term.”