Many of us look forward to the day we can hang up our work clothes and bask in the glow of a comfortable retirement, but research would suggest that this dream is becoming increasingly out of reach as a lack of retirement income puts extra strain on retirees' finances.
Prudential's Class of 2014 study has highlighted this difficulty, finding that a worrying one in seven (14%) of those due to retire this year will do so without any form of personal pension – leaving them wholly or heavily dependent on the state pension of just £113.10 per week.
This would result in an annual income of under £6,000, well below the minimum income standard for retirees to have an "acceptable" standard of living (£8,600 for a single pensioner and £12,500 for a couple, according to the Joseph Rowntree Foundation), with one in five falling short of this level.
It's an even bigger issue for women with them being almost three times more likely than men to be reliant on the state pension for income, with 20% of women surveyed having no pension savings whatsoever compared to 7% of men.
In total, the state pension will account for 35% of average retirement income for those planning to retire this year, and again there's a clear gender divide with it making up 42% of a woman's expected retirement income compared to just 28% for men, with men being more likely to not only have a personal or workplace pension but also to have more saved in it.
Vince Smith-Hughes, retirement income expert at Prudential, commented on the findings: "The changes to pensions and how people can take their retirement income announced in the Budget last month will provide savers and retirees with more choices. However they don't alter the fundamental fact that many people are not saving enough for a comfortable retirement… the state pension alone is barely sufficient."
What's even more concerning is that a lot of pre-retirees are actually overestimating the value of the state pension. Almost two in five (39%) either have no idea what it's worth or think they'll be getting more than £113.10 per week, while 17% believe it to be worth at least £880 more than it actually is.
This overestimation could mean it's an even bigger struggle in retirement when new retirees are faced with the shock of a significantly smaller income than they were expecting, and it highlights the importance of planning ahead.
It's hoped that automatic enrolment will help address this shortfall by encouraging more people to save into a workplace pension, but it's important to be proactive too. Saving as much as possible from as early as possible is essential, be it in a personal pension, increasing your workplace pension contributions or maximising your tax-efficiency with an ISA (or ideally a combination of the above), ensuring you're able to build a valuable nest egg that can cover you in retirement.
Maximising your retirement income is another important consideration, and getting suitable financial advice in the run-up to your retirement date should never be underestimated. The changes to how you can spend your pension pot might offer welcome flexibility but you'll still want to think about how to make the most of a lifetime of saving, and getting the guaranteed income of an annuity could still be preferred.
Of course, there are plenty of other options too which is why getting advice is key, and as long as you're proactive and plan ahead sufficiently you can make sure you're not one of the 14% who need to face retirement without sufficient pension savings.
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