The figures, from Prudential's Class of 2015 study, suggest that a worrying proportion of those planning to retire have no pension savings whatsoever, leaving them totally or heavily reliant on the state pension as their only source of regular income.
As a result, 16% will be retiring with expected incomes below the Joseph Rowntree Foundation's minimum income standard for an 'adequate standard of living' (£9,500) – a single pensioner who exclusively relies on the current state pension of £115.95/week would have a total annual income of just over £6,000. This is far below the recognised poverty line, and means that many retirees could be facing a meagre retirement.
"The reforms to the ways that people can use their pension savings present retirees with many new choices," said Vince Smith-Hughes, retirement income expert at Prudential. "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."
The figures highlight a clear lack of preparation when it comes to pension saving, but unfortunately, they also suggest a lack of awareness about what to expect. Overall, the state pension is expected to make up an average of 36% of a 2015 retiree's income, but despite this, a significant proportion are unaware of what it's worth – 37% think it's worth more than its current value, and a further 8% admit to having no idea.
"For many people reaching the retirement milestone this year, their income will come from a number of sources," added Hughes. "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."
The key to ensuring a comfortable retirement is having a suitable income to support you, and that all comes down to a bit of planning. As Hughes said, saving as much as you can is vital – ideally, this should be in the form of a workplace pension, something that's increasingly attractive thanks to automatic enrolment. However, don't overlook other savings vehicles, with cash ISAs being a particularly valuable way to build up a retirement fund, and all while maximising your tax efficiency.
Nevertheless, getting suitable advice is perhaps even more important, particularly if you're getting close to retirement. "With all the options now open to pensioners, a consultation with a professional financial adviser could help to avoid making decisions that may have an unwanted financial knock-on effect in later life," said Hughes. "Retirees should also remember the guidance that is available from the newly created Pension Wise service, which can help them to understand their choices."
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