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Retirees cannot rely on pensions alone

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A fifth of people approaching retirement will suffer large income falls and should expect to have to rely on savings and inheritances when they stop working, a report has found.

Analysis from the Institute for Fiscal Studies said the majority of people currently aged between 50 and the state pension age will have a replacement rate of less than 80% – meaning their income will drop by 20% when looking at pension income.

It also said more than 40% will have a replacement rate less than two thirds. Meaning their income will drop by at least a third.

The study added when other sources of income are factored in – including savings, expected inheritances, pension credit and the return owner-occupiers get from their homes – retirement replacement rates are not as bad.

It found 80% of people aged between 50 and state pension age would achieve an 80% replacement rate. And as many as 90% could see a two thirds replacement rate.

Cormac O’Dea, senior research economist and report author, said: “In assessing how prepared households are for retirement, it is extremely important to take into account the fact that many households can fund their retirement from sources other than their pensions.

“Retirement resources are not the same thing as pension income. Taking into account only income from state and private pensions, two-fifths of those approaching the state pension age will see their income fall by more than a third on retirement.

“However, using a comprehensive measure of income, the proportion facing such large income falls on retirement is just one-tenth.”

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