20th November 2015
Despite a drop in pension savings and people living longer, workers still believe they will retire before they reach state pension age.
Research by Prudential shows workers have an unrealistic expectation of when they will be able to retire and just how much they will have to live on, with the expectation gap widest amount younger workers.
Workers of all age groups are confident they will be able to retire earlier than the state pension age even though anyone born after 5 April 1978 faces a state retirement age of 68 and this is expected to increase further.
Under-35s expect to retire when they are 64 and the trend of expecting to retire at least four years before state pension age carries on in the 35-to-54 age group and over-55s.
Those aged 35-to-54 will face a retirement age of between 66 and 68 depending on when they were born but many believe they will retire before they are 63.
Those aged 55 and over, whose state pension age will be up to 66 years and seven months, expect to retire before they reach age 62.
Stan Russell, a retirement income expert at Prudential, said: ‘Although people of all ages are expecting to be able to retire well before state pension age, life expectancy continues to increase, with the average retirement now lasting nearly 20 years.
‘It is important not to underestimate quite how long retirement savings will need to last. Our previous research has shown that the average retiree in 2015 is 60 years old, but I often encourage people born in the 1970s and ‘80s to be prepared for the fact that they are likely to be working in some form or other until they are much older.’
Younger people who have unrealistic expectations about their retirement age also have unrealistic expectations about how much income they will have in retirement.
The average person planning to retire in 2015 expects to have an annual retirement income of £17,000 – 45% of whom will receive their income from a defined benefit (DB) pension scheme – down from 52% in 2008.
Despite the fall in the number of generous DB schemes on offer, those aged 55 and over in work expect an average annual retirement income of £19,400, those aged 35-to-54 expect £19,600 and those aged under-35 expect £21,400.
‘It is encouraging to see people feeling so positive about the income they will receive in retirement,’ said Russell. ‘Many people look forward to giving up work and doing more of the things they enjoy. However, in a world where fewer people will benefit from generous final salary pensions, and everyone will have to wait longer for the state pension making plans based on any false financial expectations may lead to problems later in life.’