At least one in every seven (14 per cent) people retiring this year has made no provision for their retirement and will be either totally or heavily reliant on the State Pension to provide a regular income when they retire, according to newly released research.
The findings are parts of a unique annual study carried out by Prudential which tracks the finances, future plans and aspirations of people planning to retire in the year ahead. This year’s retirees – the Class of 2016 – provide the ninth set of comprehensive insights into the post-financial crisis retirement landscape.
Prudential uses the Joseph Rowntree Foundation’s (JRF) Minimum Income Standard for a single pensioner of £182.98 a week2 as the benchmark income to support an acceptable minimum standard of living in retirement. To illustrate the risks of relying solely on the State Pension, a pensioner whose retirement date is after 6 April this year and whose only income is the full new flat-rate State Pension will have a weekly income of £155.65, or nearly £8,100 a year – a significant shortfall on the JRF standard of £27.33 a week or over £1,400 a year.
Vince Smith-Hughes, retirement income expert at Prudential, said: “We are in the midst of some once-in-a-generation changes to pension rules – change that the State Pension has not been immune to. Most of this year’s retirees will be eligible for the State Pension under one of two very different arrangements depending on their retirement date. It is very important that they understand what this means for their total income after they give up work.”
The results of Prudential’s research also highlight the value of the State Pension to all of this year’s retirees – even those with retirement savings of their own. On average, members of the Class of 2016 estimate that the State Pension will account for more than a third (35 per cent) of their income in retirement.
Vince Smith-Hughes added: “Even those who receive the full new flat-rate State Pension will find that it alone doesn’t provide the level of income required to sustain a comfortable retirement. However, given the significant contribution the State Pension makes to most retirees’ incomes it is important to make sure people do everything they can to make sure they qualify for the full amount – for example by making voluntary National Insurance contributions to cover any career breaks.
“The clear lesson from our figures for anyone saving for retirement is that someone expecting to live in any degree of comfort needs to have made some sort of pension provision of their own. There are very few better alternatives than saving as much as possible as early as possible in our working lives and the majority of people will benefit from professional financial advice when planning for retirement.”