According to the recent (May 2012) Liverpool Victoria (LV=) State of Retirement Report, now in its fifth year, 6.25 million Britons aged over 50 (28%) have no pension plan in place and look set to rely on just the state pension in retirement – a huge increase on the 1.2 million people who live solely on the state pension today.
The basic state pension equates to an annual income of up to £5,587 and averages at £9,672 a year when you take into account additional benefit income (eg additional state pension, pensions credit). This is up to 51% lower than the income someone in the UK working full time on the minimum wage would earn, which is £11,477 per year.
Even with Government plans to introduce a Universal State Pension at £140 per week, this will still provide an annual income significantly below the minimum wage. When asked if they could live on the equivalent of the minimum wage in retirement, 43% said they couldn’t live on that alone and over a quarter (27%) said they would really struggle. The report findings are that for those who have private pension savings, the average income in retirement is currently £7,488 a year. When this is combined with the state pension, many people are still only living on marginally more than the minimum wage.
The LV= report also reveals that 15% of those already retired, or within five years of retirement have cut back on contributions to their long term savings over the last 12 months, with an average decrease of £296 a month or £3,552 per year. This equates to a total of £8.31 billion “lost” in retirement savings in the last year . While these are significant cuts, a greater sum, £11 billion, was shaved off retirement savings by this group in 2011 (£343 per month). Savers into private pension plans have made the most significant cuts in 2012; an average of £523 per month over the last 12 months, compared to a £164 cut on average made by those with public sector pensions.
Over half (58%) of those set to retire within five years have become more concerned over the last year about their financial situation and their level of savings for retirement. The biggest worry is the rising cost of food and utilities (76%), followed by the general poor state of the UK economy and national debt (63%). The effect of low interest rates impacting savings (61%), high inflation (61%) and the recent reforms to UK pensions (44%) are all major causes of concern for pre-retirees.