Beware an income drop of nearly forty percent when you retire

5th June 2013

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The average person retiring in the United Kingdon can expect their regular income to fall by 38.95% according to research by enhanced annuity firm Partnership. It has also calculated that depending on the region the drop could be nearly 50 per cent.

The biggest income drop between employment and retirement occurs in London at -48.05%, the East of England at -40.20% and the South East -39.51%.  On a county basis, those in Buckinghamshire see the biggest drop at -45.37%, Cambridgeshire on -44.39%, Leicestershire (-42.11%) and Hertfordshire on -42.01%) are the most likely to see a significant reduction in their income.

Pension Income vs. Employment Income (Region):

Region

Employment Income

Pension Income

% Change

London

£20,300

£12,000

-48.05%

East of England

£19,900

£11,900

-40.20%

South East

£20,500

£12,400

-39.51%

Scotland

£18,900

£11,500

-39.15%

East Midlands

£18,300

£11,200

-38.80%

West Midlands

£18,100

£11,100

-38.67%

Yorkshire and the Humber

£18,000

£11,200

-37.78%

North East

£17,900

£11,400

-36.31%

North West

£17,900

£11,500

-35.75%

Northern Ireland

£17,400

£11,200

-35.63%

South West

£17,900

£11,600

-35.20%

Wales

£17,500

£11,600

-33.71%

United Kingdom

£19,000

£11,600

-38.95%

Partnership says that its analysis of HMRC data suggests that those relying primarily on their pension income to fund their lifestyle are likely to suffer a nasty shock when they retire and it is imperative that people build up savings and investments ahead of retirement. As the following quotes shows Partnership is using the research to extoll the benefits of shopping around and certainly of securing a better annuity if you are in ill health. But though it may suit its business, it also makes a lot of sense.

Andrew Megson, managing director of Retirement at Partnership says: “While people in retirement are likely to have fewer outgoings, it is still hard to imagine that anyone would not feel the pinch if they lost a third of their income over night.  Even if their pension is topped up by income from savings and investments or part-time work, it is still likely to be quite a shock.

In addition, many will have to stop working earlier than they intended because of health and lifestyle issues so may miss out on the opportunity to make additional financial provision and they are likely to find that the gap is even more profound. However, people can maximise their pension income by shopping around and finding out if they are eligible for an enhanced or impaired annuity.  While this is important for all those approaching retirement, it is particularly vital for those who live in more ‘affluent’ areas as if their provider uses post code pricing they may find they are worse off.”

Hargreaves Lansdown head of pension research Tom McPhail adds: “Most people significantly underestimate both how long they will live in retirement and how much money they are going to need to live on. Typically, they start too late, save too little and expect too much. Linking projected post retirement income to current earnings makes sense as it helps to plan that transition from work to retirement.

“The other key question is when they can afford to retire. We anticipate that within a few years, retirement at 70 will become the norm unless people plan ahead. Everyone should take the time to find out how much is bring paid into their retirement savings, what kind of income it might produce and when they can expect to retire. A comfortable retirement won’t happen by accident.”

 

 

16 thoughts on “Beware an income drop of nearly forty percent when you retire”

  1. Forbin says:

    Hello Shaun,

    The economic answer is to leave the Euro but you know my thoughts on that !

    They on t’rack and always will be , oh no doubt in some distant future the economy will recover and all the eurocrats with be breaking their arms patting themselves on the back for it !

    in the meantime , they in and can never leave

    they have their leader to blame for that

    Forbin

    1. Anonymous says:

      Hi Forbin

      Actually when given the choice the various political establishments in the Euro area periphery have tied themselves closer to the Federal project. Sadly this means that exiting the Euro requires a revolution first.

      Oh and today’s sad events have pushed oil virtually back to US $108 (Brent Crude) as the tractor beam wins again

  2. @FionaMullenCY says:

    Good analysis but couple of points: 1) services are 80% of GDP so deficit on trade in goods (which has been declining) in an island economy with little manufacturing doesn’t mean much. Tourism and tourism revenue are up. 2) The need for capital increase is all about the EU tests where the heavy discount on government bonds surprised everyone, probably even the troika. So yes there are still big challenges but in general the economy and fiscal performance keep surprising on the upside. Shameless plug http://www.sapientaeconomics.com/country-analysis-cyprus

    1. Anonymous says:

      Hi Fiona and welcome to my corner of the blogosphere.

      This bit sounds rather like the UK too! “services are 80% of GDP so deficit on trade in goods (which has been declining) in an island economy with little manufacturing doesn’t mean much” Although it is not seen like that..

      As to the Cyprus trade deficit declining it did in 2013 but seems to be widening so far in 2014.

      If we move to the discount on government bonds it is quite a difference from the original ECB methodology which at least for itself assumed 100% repayment every time. But at these prices -for example the ten year German bund yield was mere 1.15% tonight- I would argue that a sensible decision was made.

  3. Pavlaki says:

    I have just been on a foreign exchange site and read an article about the downing of the Malaysian airliner in Ukraine and the article is all about the likely political ramifications on the stock market and exchange rates and how to profit from it. I think I have just lost all hope for humanity. Sorry this has nothing to do with your excellent analysis Shaun but I am beyond words.

    1. Anonymous says:

      Hi Pavlaki

      You are right to say that it has been a grim day as whoever or whatever did it that airliner has crashed and 295 people have died. Adding to that has been the Israeli army moving into Gaza. All very sad.

      Markets however are very brutal about such things as I recall events like the Space Shuttle Challenger and various wars. Not their finest hour.

  4. therrawbuzzin says:

    I cannot believe that you have turned the appropriation of wealth in Cyprus, bearing in mind the purpose of that appropriation, into an anti-left, neo-liberal rant!

  5. Noo 2 Economics says:

    Yes I agree with therawbuzzin, you do seem to have missed that the appropriation was for the benefit of a capitalist enterprise – the Bank of Cyprus in case you were wondering. No self respecting leftist would sign his/her name to that kind of operation, more like their worst nightmare than fantasy.

    I do agree that whenever a private enterprise loses money and can no longer operate it should be allowed to die, as happened with the coal mines and British Steel. What is it about banks that makes everyone think we should do “whatever it takes” up to and including bankrupting the entire populace to prop them up?

  6. Anonymous says:

    Hey – I got a great anti-neo-liberal policy for you. Send all your Scots oil taxes to help your poorer comrades in Cyprus

  7. therrawbuzzin says:

    I got a better one for you; no state benefits of any kind (that means no tax breaks, no child benefits, no council benefits, nothing) for anyone in work.
    Let’s see how long yer neo-liberal theories last then.

  8. Anonymous says:

    You certainly have posted anti-Westminister tax comments.

    That logically makes you either a hypocrite or a Scots neo-liberal, if not both.

    If the hat fits

  9. Anonymous says:

    Tony Blair’s post PM jobs in a bank – best described as banana republic grade cronyism

  10. therrawbuzzin says:

    I disagree. I have never argued against taxation, only the uses to which the revenues are put.
    My previous post inferred that the best anti-neo-liberal policies were those that gave it its full head.
    If you are looking to insult me, you really should do better.

  11. Anonymous says:

    If you get upset at people labelling you as “neo-liberal” then you should refrain from labelling other people in a similar manner.

    Most of the posters on this forum make points without name calling. If you want to trade insults – you might like to play with the trolls on the CNN Ukrainian news pages.

    I have no more time to waste on a intellectually pointless slanging match.

  12. therrawbuzzin says:

    I’m not upset, but I’d rather be a hypocrite than a neo-liberal.

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