Income to be slashed by 50% for new Pensioners
New pensioners warned that retirement will slash their income by up to 50%
Many underestimate how long they’ll live and how much cash they’ll need
Lack of savings and low interest rates on annuities compounding problem
Londoners will lose 48% of income, average Briton will suffer drop of 39%
Most will see their annual income drop from £19,000 to £11,600
By MARTIN ROBINSON
PUBLISHED: 09:12, 5 June 2013 | UPDATED: 09:44, 5 June 2013
Britons can expect their income to be slashed by up to 50 per cent when they hit retirement, with the majority having to live on less than £12,000 a year, it was revealed today.
Experts have warned that people who choose to rely on pension pay-outs to survive are ‘likely to suffer a nasty shock’ when they stop work.
This is because too many underestimate how long they are going to live for and how much cash they will need to live on.
Official figures from HM Revenue and Customs show that while the average UK worker earns £19,000, this will drop 39 per cent to £11,600 when they start claiming their state pension and a private pension if they have one.
Londoners will be worst hit with their income falling 48 per cent from £19,900 to £11,900, followed by those living in the Home Counties who face losing between 42 and 45 per cent a year.
Those living in the East of England will suffer a 40 per cent drop on average.
But Dorset residents are considered the best off, as their income will only drop by 29 per cent, as they earn a lower average wage while working.
Tom McPhail, a pensions expert at IFA Hargreaves Lansdown, said: ‘Typically, they (Britons) 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.
‘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.’
The problem is that not enough Britons have savings and there are rock-bottom interest rates on annuities – the guaranteed income individuals buy from a pension pot.
As well as falling interest rates, poor stock market investment returns and greater life expectancy have also seriously devalued annuities over the past few decades.
In the early Nineties someone with a £100,000 pension pot might have retired on an annual income of £18,000. Today the same savings would give an annual income of nearer £6,000.
Partnership, a leading British annuity provider, has provided the analysis of HMRC’s data, from 2010/2011.
Andrew Megson, managing director of retirement at Partnership, said: ‘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 overnight.
‘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.’