27th May 2014
The gap between what people have set aside and what they need to live comfortably in retirement may be as much as £100,000 according to new research from retirement income specialist MGM Advantage.
By analysing official data, the company has worked out the pension pot required to bridge the gap to provide two-thirds salary, which according to new research1, is the average ideal retirement income could be significantly higher than what many people have set aside.
The gap is £5,954 a year for the average retiree, which would require a pension pot in the region of £100,000 using an annuity, or £200,000 if you want your income to rise with inflation and provide for your spouse. These figures do not include people taking any tax-free cash from their pension, so the firm says that in reality the pension pot required may be significantly larger.
|Average income before retirement2||£33,288|
|Aiming for 2/3rds salary in retirement||£21,970|
|Current average income in retirement3||£16,016|
|Retirement funding gap4||£100,000|
Andrew Tully, pensions technical director at MGM Advantage says: ‘These figures show the true scale of the problem facing people approaching retirement. There is a chasm between savings and the ‘ideal’ retirement income, which should serve as a wake-up call for many people.
‘The scale of the challenge becomes even scarier if want your retirement income to keep pace with the cost of living and provide for your spouse. There are options for people who might have left saving for retirement too late, for example you could consider delaying retirement, continue to work part-time, use equity release or even downsize your home.
‘The recent changes brought about by the Budget potentially provide more choice for people looking to generate a retirement income. But you still need a sizable pension pot or other savings to draw on to provide a sustainable income. Seeking professional financial advice can make a big difference to the value of the retirement income you could get.’
The numbers show some wide variations on a regional basis, with people retiring in the North East and East of England faring better than those in the South East and London.
1. Source: MGM Advantage research among 2,028 UK adults aged 18+, conducted online by Research Plus Ltd, fieldwork 17-22 October 2013. The ideal average retirement income was 67% of pre-retirement earnings.
2. Source: ONS ASHE survey 2013, average income for full-time employees aged 50 and over.
3. Source: MGM Advantage analysis of ONS data, The Pensioners’ Income Series 2011/12 for a single pensioner. The figures include all gross income including Social Security Benefits (including Housing Benefit), earnings from employment, private pension income and tax credits.
4. Source: based on current annuity rates, a pension pot of £100,000 would generate an annual income of £5,954 (age 65, single life, level, nil guarantee) or £200,000 would be required at age 65 for an income rising in line with inflation and providing a 50% spouse benefit (spouse is age 62).
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