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Data crunch: 20 retirement income lessons from 2018 so far

We regularly take a look at the retirement income market with lots of facts and figures on everything to withdrawal rates and equity release to debt levels and working in retirement. Here we pull together swathes of the most interesting data.

23rd April 2018

Steven Cameron, pensions director, Aegon

The lowdown: pension freedom

The Financial Conduct Authority (FCA) has already said it believes those using the pension freedoms to draw down income, without seeking advice will face a raft of retirement risks. 

Those who were first to use the pension freedoms back in April 2015 seem to have done well. Looking at typical investment returns over the past three years, people taking the average income of 5.2% may find they have more in their pot than when they started.

However, retirement can last 20 to 30 years. As investment returns can change dramatically year on year, such a level of income may not be sustainable for life.

The stats: 

  • Fund at commencement: 148,750.
  • Income of 5.2% per month: £645.
  • Total income over three years: £23,220.
  • Fund after three years: £157,500.
  • Investment gain (after withdrawals): £8,750.

Source: Aegon

The figures above assume a charge of 0.75% of fund per year and investment returns based on Aegon funds. 

23rd April 2018

Steven Cameron, pensions director, Aegon

The lowdown: pension freedom

The Financial Conduct Authority (FCA) has already said it believes those using the pension freedoms to draw down income, without seeking advice will face a raft of retirement risks. 

Those who were first to use the pension freedoms back in April 2015 seem to have done well. Looking at typical investment returns over the past three years, people taking the average income of 5.2% may find they have more in their pot than when they started.

However, retirement can last 20 to 30 years. As investment returns can change dramatically year on year, such a level of income may not be sustainable for life.

The stats: 

  • Fund at commencement: 148,750.
  • Income of 5.2% per month: £645.
  • Total income over three years: £23,220.
  • Fund after three years: £157,500.
  • Investment gain (after withdrawals): £8,750.

Source: Aegon

The figures above assume a charge of 0.75% of fund per year and investment returns based on Aegon funds. 

16 April 2018

David Burrowes, chairman, Equity Release Council 

The lowdown: equity release

Although pensioners’ income is on the rise, an over-reliance on private pensions could increasingly lead to a retirement income shortfall in the future. Pensioners will see the value of their pensions fall due to the shift from generous final salary schemes to defined contribution schemes. As people are living longer, millions of workers will face severe reductions in income when they retire.

This, alongside considerable growth in house prices, means property will increasingly become many pensioners’ most valuable asset. Total homeowner equity in England reached £2.6 trillion in 2016. Of this, £1.8 trillion belonged to households with a homeowner aged 55 or over. This figure is set to double by 2036.

Unlocking housing wealth is already becoming an increasingly popular option. A Financial Conduct Authority report last week said, as retiree debt levels rise, demand for equity release products could increase.

The stats:

  • £3.1 billion: the amount of equity released from homes in 2017.
  • 56p: housing wealth unlocked by over-55s for every £1 of savings accessed via flexible pension payments.
  • £67,000: customers who used equity release in 2017.
  • 86: number of equity release products on the market as of January 2018, rising annually by 25%.

19 March 2018

Steven Cameron, pensions director, Aegon

The lowdown: life expectancy

The government’s prediction that 10 million Brits alive today can expect to reach 100 will be good news for some and pretty scary for others. Particularly if living longer means lengthy periods of poor health or reliance on social care.

Office for National Statistics figures this month showed the average person is likely to live their last 15 years in poor health.

As part of the government’s industrial strategy, additional funding to research the challenges of our ageing society has been made available. This is a welcome step, particularly if it leads to earlier diagnosis and new treatments. This means not just longer lifespans but longer, healthier lives.

But the £348 million funding is dwarfed by the true financial challenge if individuals are to make the most of longer healthier lives.

The stats:

  • £348 million: the total investment by the government to support ageing society, research dementia and provide dementia care.
  • £98 million: investment in healthy ageing programme.
  • £210 million: investment for a data-to-early-diagnosis and precision medicine programme.
  • £40 million: investment in new hub for UK Dementia Research Institute.

12 March 2018

Vince Smith-Hughes, retirement income expert, Prudential

The lowdown: debt in retirement

At a time when the base interest rate is expected to rise, it is worrying that nearly one in five people expecting to retire this year still have debts to clear. Overall, fewer people are retiring in debt. However, the amount of debt people are retiring with is now 40% higher than for those who expected to retire last year. 

With debt repayments averaging £285 a month, they take a substantial slice of monthly retirement income. This will make budgeting tougher at a time when most people’s income drops as they stop work. 

Data crunch: of 9,896 non-retired UK adults aged 45+, including 1,000 planning to retire in 2018:

  • 14% expect to take seven years or more to pay off their debts.
  • 6% fear they will never clear the money they owe.
  • £34,000 is the average debt of one in five people retiring this year.
  • There has been a 40% year-on-year increase in debt levels for 2017's retirees.
  • £285 is the average monthly debt repayment.

5 March 2018

Kate Smith, head of pensions, Aegon

The lowdown: women and the pension freedoms

In the three years since their introduction, the pension freedoms have revolutionised the way people plan for retirement. They have ushered in a new era of flexibility and provided greater choice for the over 55s. 

The most recent labour market figures showed the proportion of women aged 16 to 64 in work has reached its joint highest rate since records began in 1971. Unfortunately, for many women, a lack of private pension savings mean they are compelled to work longer to make ends meet.

This situation will only be further exacerbated as the state pension age, which is set to equalise with the male age of 65 from October this year, continues to increase. Private pensions will increasingly fill the gap in income between the time savers want to retire and when they start to receive their state pension.

The stats: from 4,000 UK adults:

  • 14% of working age people are saving more into their pension as a result of the pension freedoms.
  • 15% of people realise they need to plan better for retirement, up from 10% in 2016.
  • 22% still do not understand how to review their retirement plans.
  • 50% of the UK population had not reviewed their retirement plan in 2015.

26 Ferbuary 2018

Tom Selby, senior analyst, AJ Bell

The lowdown: pensions and the self-employed

Owing to the rise of the ‘gig’ economy, there is a growing army of self-employed workers helping to drive UK plc. But with the self-employed excluded from auto-enrolment, the government faces a problem of chronic undersaving and a looming retirement crisis.

Recent Office for National Statistics (ONS) data shows the number of self-employed has increased from 3.3 million people (12% of the labour force) in 2001 to 4.8 million (15.1%) in 2017.

According to the ONS, almost half (45%) of self-employed workers aged 35-to-54 have no private pension wealth, compared with around 16% of employees. This trend continues for ages 55 and above, with the highest share of the self-employed having no private pension wealth.

Without employer contributions, policymakers and the wider profession need to promote the value of tax relief and saving for the future. They must make a bold, binding, cross-party commitment to stability in the pension tax system. 

The stats:

  • 4.8 million self-employed workers in the UK in 2017, up from 3.3 million in 2001.
  • 45% of self-employed people have no private pension wealth.
  • 16% of employed workers aged 34-54 have no private pension wealth. 

19 February 2018

Jacqueline Lockie, head of financial planning, Chartered Institute for Securities & Investment

The lowdown: pension naivety

There is a widespread lack of knowledge about pensions. 80% of women and 72% of men do not know the value of their pensions. More than a quarter of those who should know better, the over 55s, do not know how their pension works.

The stats:

  • 39% of 18-24 year-olds believe their standard of living will stay the same during retirement.
  • 18% believe their standard of living will improve during retirement.
  • 35% say they will rely on their bank savings to fund retirement.
  • 26% of over-55s do not know how a pension works.
  • 34% of workers have never checked the status of their pension accounts.

12 February 2018

Kate Smith, head of pensions, Aegon

The lowdown: women and the pensions gap

One hundred years after some women secured the vote, a gender pay gap still exists across every occupation.

This, combined with disrupted working patterns, also means women's pension saving lags behind that of men.

By the time they are 50, women have on average built up savings of £56,000, only half that saved in men's pension pots, which is nearly £113,000.

Gaps in pension savings leave you worse off in retirement. But for women, who often take time out of their career to raise a family or care for elderly relatives, this is unavoidable. It could mean working longer to make up the difference.

The stats: readiness research on more than 2,000 18-65 year-olds:

  • 49% of women are not confident about a comfortable retirement.
  • 33% of men said the same.
  • 28% of women do not know how much they have saved.
  • 9% of men said the same.
  • 42% of women have never thought about how much money they will need in retirement. 

5 February 2018

Dean Mirfin, chief product officer, Key Retirement

The lowdown: equity release re-think

Equity release grew at its fastest rate ever last year. Homeowners released £3 billion of equity in 2017, more than double the figure in 2014.

This year it is expected to continue to grow. Key Retirement predicts lending across the market will hit £3.85 billion as more than 50,000 retired homeowners use their property wealth to boost their standards of living.

But there needs to be more new thinking. Lenders should be able to offer higher loan-to-value plans. These enable customers to pay interest on part of their loan if they can afford to, as well as allowing older borrowers to make more use of their property wealth.

The stats: of 11,000 Key Retirement equity release clients...

  • 64% used the money to improve their home or garden.
  • 33% are taking holidays.
  • 31% are paying off credit cards or loans.
  • 22% are using the money to pay off an outstanding mortgage. 

29 January 2018

Phil Blows, director, Wealth Wizards

The lowdown: employers turn to IFAs to help workers retire on time

There is a disconnect between employees and employers when it comes to retirement age. While employees want to retire at or before the age of 65, many lack sufficient funds and are being forced to work into later life for financial reasons.

Meanwhile, some employers do not realise the importance of supporting their ageing workforce in achieving their retirement ambitions; however, there are examples of positive success for those offering financial advice. For instance, InterContinental Hotels Group had around 25% of its lowest-saving workforce increase their contributions, on average, by more than 100%. This was within a nine-month period after undertaking a targeted financial advice project.

There is a high demand from employees for their employer to do more to help them achieve their retirement objectives. By providing financial advice now, it could save employers significant wage bills in the future.

The stats: of 1,000 UK residents...

  • 86% of employees want to retire at or before 65.
  • 66% of employees did not have enough pension savings and worry they cannot retire at 65.
  • 25% of employees stated their employer did not offer financial education but they would like their employer to do so.

22 January 2018

Jon Greer, head of retirement policy, Old Mutual Wealth

The lowdown: pension freedoms puzzle

The positive effect of financial advice should be available to all. Increasing the uptake of advice needs to be a government priority. A midlife MOT to assess an individual’s retirement provision, at a stage in life when they have time to take action, could be the solution. 

The pension freedoms heralded one of the most dramatic reforms to pensions since 1921, when tax relief on contributions was introduced. People must now engage more with how they will use their pension savings for later life. Failure to make well-informed decisions could mean missing out on a secure retirement. 

Huge swathes of the older population still do not fully understand the effect of the pension freedoms. Those who had seen an adviser, even just once, were much more likely to have got to grips with the reforms.

The stats: of more than 1,500 50-75 year-olds...

  • 45% are worried their pension pot will not last their retirement.
  • 37% of upcoming retirees are still unsure when and how to access their pensions.
  • 47% are unaware of the pension freedoms or do not know the effect of the reforms on them.

15 January 2018

Kirsty Anderson, retirement expert, Prudential

The lowdown: a relaxing retirement

Over the past 10 years we have studied the finances, plans and aspirations of people as they reach retirement. 

We have found that almost nine out of 10 say retirement has met their expecations or they are happy with how it has turned out.

Many of those surveyed will benefit from generous final salary pensions. So for those planning to finish work in the next 10 years, consultation with a financial adviser will be beneficial in the face of changing pension rules. 

For the retirees of 2028 it will be important to save as much as possible during their working lives.

The stats: Of 751 adults who retired in the last 10 years...

  • 26% said they were fitter and healthier.
  • 63% said they were financially comfortable.
  • 23% said they had a better social life.
  • 25% said they had a better relationship with their family.
  • 37% said they thought they would miss work more than they actually do. 

8 January 2018

Tom Selby, senior analyst, AJ Bell

The lowdown: the freedoms and advice

Savers stuffing their faces on pension freedom withdrawals might find it more difficult to get themselves back in financial shape.

An AJ Bell survey of 250 UK adults aged over 55 who have flexibly accessed their pension shows 44% are withdrawing more than 10% of their pension savings each year.

This highlights the value of regulated financial advice. Anyone taking advantage of the pension freedoms needs to have a realistic idea of how long their pension income might need to last and what level of investment return they can hope to achieve.

The stats: of 250 over-55s...

  • 44% of savers are taking withdrawals of 10% or more.
  • 12 years is how long a 10% annual withdrawal could last.
  • 26 years is how long a 6% annual withdrawal could last.
  • 51% of people aged 55 to 59 expect their pension to last 20 years or less.
  • 24-30 years is the average life expectancy for people aged 55 to 59.

11 December 2017

Adrian Boulding, director of retirement strategy, Dunstan Thomas

The lowdown: rising poverty and the gender gap

There is a deep-seated gender bias at work that is leaving women more vulnerable to poverty in old age than men.

We found baby boomer women are twice as likely as their male counterparts to rely on their state pension alone. This may reflect the fact that until as late as the 1970s, women tended to be excluded from occupational schemes. Others chose not to join an employer scheme, perhaps thinking they would be able to rely on a partner's pension savings in retirement.

The stats: of 1,002 51 to 74 year-olds...

  • 15% of women aged 60 to 62 were judged to be in poverty by the Institute for Fiscal Studies (IFS).
  • 54% of women baby boomers were predicted to work beyond age 65.
  • 21% women baby boomer were relying on the state pension alone for income.
  • 42% of women baby boomers did not know where to get more information about the pension freedoms. 
  • 10% of women baby boomers had downsized their homes to bolster their retirement income. 


4 December 2017

Jessica List, pensions technical manager, Curtis Banks

The lowdown: pensions and commercial property

During a recent educational email campaign, we asked a number of survey questions to help us understand advisers’ experiences with commercial property. Advisers are generally aware of the potential benefits of holding property: just under 90% of respondents were aware of each of the benefits we listed.

It is surprising, then, that commercial property is still a relatively untapped market in terms of pension investments. Only around 1% of commercial property transactions in the UK are completed using pensions.

The stats: of 55 advisers...

  • 31% said the pension freedoms made them more likely to recommend commercial property.
  • 89% were aware commercial property is exempt from capital gains tax.
  • 0% were unaware of the benefits of holding commercial property in a Sipp.
  • 1% of commercial property transactions use Sipps.

27 November 2018

Phil Blows, director, Wealth Wizards

The lowdown: London retiree regrets?

Over 60s in London have far fewer regrets than those who live in other parts of the country. 2,000 over 60s around the UK were asked what they would change about the way they had planned for their retirement. Those in the North and Midlands had far more to say than those in the South.

The views of current retirees can provide valuable insight into what the future might hold for current pension savers. There is a substantial difference in levels of regret when it comes to retirement planning depending on geography. This suggests that, in previous years, people in different parts of the country have been affected by different factors when it comes to financial planning.

The stats: the north-south divide

  • 76% of Scottish pensioners wish they had invested more into their pension.
  • 38% of Londoners feel the same.
  • 79% of those who live in Yorkshire wish they had worked out how much they would have to live on in retirement.
  • 37% of Londoners feel the same.
  • 63% of those who live in the Midlands wish they had put more thought into where they invested their money.
  • Just 18% of Londoners feel the same. 


20 November 2017

Adrian Boulding, director of retirement strategy, Dunstan Thomas

The lowdown: retirement packs

Wake-up packs are currently sent out four to six months before a saver's planned retirement date, or when a customer request a retirement quotation. 

The regulator requires this.

However, prescriptive rules like this no longer serve customers well. In a recent study of 54 to 71 year-old personal pension policy holders, we found less than third of (32%) recalled receiving their wake up packs. 

Of this 32%, we found 11% said the packs had arrived too late to be able to help them. They had already made retirement decumulation decisions so the pack was effectively a waste of paper. 

In the post-pension freedoms world, now is the time for a digital and interactive wake-up pack as the perfect acommpaniment to the Pension Dashboard.

The stats: of 1,001 54 to 71 year-olds...

  • 11% of wake-up packs arrived too late.
  • 17% think their pension provider's pre-retirement communication is poor.
  • 92% originally set their predicted retirement age at or before age 65.
  • 69.2 was the average age at which those not retired now expected to retire.  

6 November 2017

Tom Selby, senior analyst, AJ Bell

The lowdown: pension death benefits complexity

While the UK's pensions death benefits regime is extremely generous, it is also poorly understood by savers.

Of the 985 UK adults with a personal pension surveyed by AJ Bell, fewer than one in 20 (4%) correctly identified that their pension would be passed on tax-free if they died before the age of 75, and subject to the income tax rate of their beneficiary if they after 75. In fact the vast majority (75%) admitted they simply had no idea.

This malaise is not limited to death benefits taxation. Only 7% of respondents were able to correctly identify that their pension provider has discretion over where their pension is paid on death (albeit taking into account their nominated beneficiaries). Most worryingly, almost a third (32%) of people had not nominated a beneficiary at all. 35% had not done so for five years. 

The stats: of 985 adults with a personal pension, AJ Bell argues...

  • 8.4 million people in the UK do not understand the UK's pension death benefit rules.
  • 7% knew their pension provider will decide who their pension goes to when they die.
  • 4% correctly identified their pension would be passed on tax-free if they died before 75, and at the beneficiaries marginal rate after 75.
  • 58% admitted they did not know how their pensions would be taxed on death. 

30 October 2017

Alistair McQueen, head of savings and retirement, Aviva

The lowdown: the sandwich generation

When it comes to shaping someone’s financial future, the pounds, pence and pensions do not tell the full story.

An individual can take all their assets, put them into an online calculator and get a rough idea of what they are worth financially and potential ways to improve their position. But there is far more to making sure someone gets the best possible outcome from their savings. An adviser needs to dig deeper and understand a client’s hopes and dreams. They also need to be aware of their family situation and the financial pressures they may be under.

We wanted to get a real picture of what life is like for people aged over 50 in the UK. The findings in our Real Retirement Report can at times make uncomfortable reading. People in their 50s are facing a largely unprecedented situation. They have children still relying on them for financial support and ageing parents who are facing increasing care costs.

This sandwich generation is being squeezed. Financial advice from someone who understands that and can help them make their assets work as hard as possible could prove invaluable.

The stats: of 3,327 over-50s:

  • 32% of over-50s with dependents say their children's financial needs are the only reason they are still working.
  • 12% say the same about their parents' financial needs.
  • 12% of over-50s have stopped saving completely to support children and parents who are financially dependent on them.

23 October 2017

Claire Finn, Head of UK DC Pensions, BlackRock

The lowdown: contribution choices

The introduction of auto-enrolment was a bold and much-needed step to promote a broader culture of saving in the UK. But it needs to go further.

Brits are now largely accountable for their own retirement provision. Our DC Pulse survey of 509 defined contribution (DC) members in the UK shows that those saving into a workplace pension need greater guidance as to how much they need to save if they want to meet their needs in retirement.

The increase in the contribution rate to 8% in April 2019 is a step in the right direction but could be misinterpreted as the ‘magic number’. We need to help savers understand that even 8% is unlikely to be enough for them to retire comfortably.

One of the biggest surprise factors from our survey is the divergence in opinion between members and employers as to what constitutes good investment design.

Employees are crying out for more guidance as to how much they need to be saving into their DC pension, and they want their employer to focus on getting a good return on their hard-earned cash.

Schemes commonly prioritise keeping the underlying investments simple. We believe schemes should keep contribution choices simple and prioritise an optimised default investment.

The stats: of 509 DC savers...

  • 70% would like the government to introduce a compulsory contribution rate as a percentage of their monthly salary.
  • 43% do not know how much of their monthly salary they should put into their workplace pension.
  • 15% is BlackRock's recommended minimum contribution rate. 
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