15% of those planning to retire during 2015 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 ‘Class of’ study, tracking the future plans and aspirations of people who plan to retire this year, the insurer also found that 16% of the ‘Class of 2015’ 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 – well below the JRF standard.
A retired couple both qualifying for the full State Pension receiving a combined income of £231.90 a week, but with no further pension income, are getting by just above the ‘poverty line’. The most common measure of the poverty line is 60% of the median household income, and based on this assumption the Department of Work and Pensions calculates the household poverty line (after housing costs) to be an income of £224 a week.
Prudential’s research also highlights the importance of the State Pension to all people planning to retire this year – even those who have other forms of pension savings. On average the State Pension will provide 36% of a 2015 retiree’s income. However, despite the important role it will play in providing their future income, a significant proportion of the ‘Class of 2015’ are unsure what the State Pension is actually worth – 37% think it is worth more than its current value and a further 8% admit to having no idea what it is worth.
Vince Smith-Hughes, retirement income spokesperson 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.
“For many people reaching the retirement milestone this year, their income will come from a number of sources. 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. Retirees should also remember the guidance which is available from the newly created Pension Wise service, which can help them to understand their choices.”
Women are more than twice as likely to have to rely on the State Pension or other savings – 21% of women say they have no pension savings compared with 9% of men. Women anticipate the State Pension will account for 41% of their expected retirement incomes compared with 31% for men.
Those expecting to retire this year in the East and North West of England are the most likely to have to rely on the State Pension or other savings – 19% and 18% respectively have no other pension. By contrast, those in Yorkshire and the Humber will be the least reliant on the State, with just 11% entering retirement without any pension savings.
Of those that do have a pension and will not be relying solely on the State Pension, 56% have a final salary scheme as their main pension compared with 44% who have variants of Defined Contribution as their main pension scheme.
Despite the large number of people retiring with no pension, 54% of this year’s retirees feel financially well prepared for retirement, up from 47% in 2014. However, women (50%) are less likely to feel well-prepared than men (59%).
