State pension crucial to one in seven retirees
More than one in seven (15 per cent) of people planning to retire this year have no pension savings, and will either be totally or heavily dependent on the state pension as their only source of regular retirement income, according to research by Prudential.
In its eighth annual study tracking the plans and aspirations of people who plan to retire this year, the insurer also found that one in six (16 per cent) will be retiring with expected incomes below the Joseph Rowntree Foundation’s (JRF) minimum income standard for an adequate standard of living for a single pensioner of £9,500.
A single pensioner exclusively relying on the full state pension of £115.95 a week has a total annual income of just over £6,000. A retired couple both qualifying for the full state pension and receiving a combined income of £231.90 a week, but with no further pension income, would be just above the household poverty line, calculated by the Department of Work as an income of £224 a week, after housing costs.
Women were more than twice as likely to have to rely on the state pension or other savings, with 21 per cent of women saying they had no pension savings compared with nine per cent of men.
Prudential’s research, published on 22 May, also highlighted the importance of the state pension to all people planning to retire this year, including those who have other forms of pension savings.
On average, the state pension will provide 36 per cent of a 2015 retiree’s income. However, almost two in five (37 per cent) of the 1,012 people questioned thought it was worth more than its current value and a further eight per cent had no idea of its value.
Vince Smith-Hughes, retirement income expert at Prudential, said: “The reforms to the ways that people can use their pension savings, that came into effect in early April, present retirees with many new choices.
“However, only those with their own pension savings will be able to benefit from the new choices, while people who rely solely on the state pension are likely to have to face serious financial belt-tightening when they give up work.
“Our research shows that the state pension will make up a significant proportion of income for most people – but it is important not to overestimate its value. To secure a comfortable retirement income the best approach remains to save as much as possible as early as possible during your working life.
“With all the options now open to pensioners, a consultation with a professional financial adviser could help to avoid making decisions that might have an unwanted financial knock-on effect in later life.”