Six ways people are making themselves poorer in retirement
The group identified six ways people may see their pension income drop:
1. Relying solely on the state pension
Real retiree living costs are currently £208, however the basic state pension is £122.30 per week (rising to £159.55 per week for those born after 1951 for men or 1953 for women). Leaving a deficit of £85 (or £48) per week. That’s £340 per month retirees need to find from other sources. According to the Financial Conduct Authority, 15.1 million adults in the UK that aren’t retired are not paying into a pension.
2. Opting out of the workplace pension
From April, workplace pension contributions are set to increase and this could impact those on low wages, leading to more people opting out of the scheme. The minimum combined contribution will rise to 5%. The white paper showed that workplace pensions are set to be used by half of future retirees. Insurance company Aegon has warned that young workers opting out of the scheme could potentially lose out on £450,000 by the time they reach retirement age.
3. Not in work or are self-employed, but have no retirement plan
If you’re out of work, self-employed or perhaps a stay-at-home parent, you may be missing out. No workplace pension means you need to be thinking about other sources of income for retirement. There are plenty of options available but, this means spending some time researching to find out what will work best for you. Lifetime ISAs, investments and property are all options which will help those without a state pension fund retirement. One in 10 retirees currently rely on children and relatives to help financially in retirement.
4. Not owning property
Property is a popular choice for funding retirement, with one in 10 planning on downsizing, and one in 20 planning to use equity release. The average Brit approaching retirement in the next 10 years plans to raise £62.1k from downsizing and £61.1k from equity release. The Equity Release Council reports that equity release is an increasingly popular way for retirees to raise funds, their Autumn 2017 market report showed that the number of products on the market has increased 225% in the last decade. However, younger Brits are finding it increasingly difficult to get on the housing ladder.
5. Not thinking about care in old age
85% haven’t factored in the costs of elderly care to their future financial plans yet, according to NHS and Age UK’s 2015/16 figures. There were 1.31 million new requests for social care support from older people and as the UK population ages this is only set to increase. This could be why over half (57%) of people in the UK are concerned about the costs of elderly care and the lack of funding. They worry about the costs associated with deteriorating health such as paying for a carer or assistance and how this could deplete their retirement savings.
6. Not educating yourself on retirement planning
Some of the most concerning statistics that came out of the report is that one in four retirees are currently struggling with money, and one in three (38%) retirees said they underestimated how much money is needed to live comfortably in retirement. 58% of retirees said they wish more help and advice about retirement and pensions had been available when they were younger.