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Retirement income hits five year low

Average 2012 incomes fall 16% compared with 2008

Company pension pot

People retiring in 2012 expect to live on an average annual income of £15,500

People retiring in 2012 expect to live on an average annual income of £15,500. That’s over £1,000 a year less than those who retired in 2011, a drop of 6%.

Key findings of the research from Prudential include:

  • Those retiring in 2012 expect a retirement income of £15,500
  • Average incomes in retirement expected to be over 16% lower than in 2008. Those who retired in 2008 looked forward to a total annual income, including private, company and state pensions, of approximately £18,600. Those retiring this year expect to receive £3,100 a year less.
  • Regional variations are significant. While Londoners have the highest average expected incomes of £17,900, retirees in Yorkshire and Humberside have the lowest at £12,800.
  • One in five expect to retire on less than £10,000 a year.
  • Fewer than two in five (37%) expect a financially comfortable retirement. Men are more optimistic about their retirement than women, with 45% of men confident they will be financially comfortable compared with 31% of women.
  • Nearly one in five (18%) of those planning to retire in 2012 have no idea of the level of income they will need in order to live comfortably.

Pension investments and pensioner incomes under pressure

Which? finance expert Martyn Saville commented: ‘It’s unsurprising that those retiring this year are feeling vulnerable. Falls in the stock market over recent years may not only have knocked significant amounts off people’s pension pots, but many will have locked in those losses through the lifestyling process. 

‘Lifestyled pension schemes gradually move your pension fund into less risky investments as retirement approaches. Unfortunately, this can mean your pension fund sells equities just as they’re at their lowest price, meaning you crystallise those losses.

‘Low annuity rates have also pushed down retirement incomes for people in money-purchase schemes, while pensioner incomes are under pressure from inflation, particularly rising fuel and food bills. The medium-term picture is unlikely to improve significantly as tight household budgets make pension contributions unaffordable for many consumers.

‘If you’re coming up for retirement, speak to an Independent Financial Adviser (IFA) to make sure you get the most out of your fund when you come to convert it into an income.’

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