The £80,000 price tag for living longer
People face a choice between saving more, working longer or budgeting better to fund their retirement, according to Scottish Widows.
The life and pensions provider says Brits are underestimating how long they’ll live and could end up facing a shortfall in retirement savings.
The company’s research found one in five people (19 per cent) base their own life expectancy on the age to which their grandparents lived – despite lifespans increasing by 11 years across the past three generations.
The average life expectancy of UK adults saving for retirement is 87 years, yet the average adult expects to live until 82 and retire at 65.
That means, at 22 years, a typical retirement is actually 30 per cent longer than people expect. Those five additional years will require an extra £80,000 in pension savings. Scottish Widows calculated that this means people need to put aside a total of £340,000 during their working life.
Retirement plans at risk
Despite the shortfall, one in 10 (10 per cent) over-50s doesn’t know how they will fund their retirement and 28 per cent fear running out of money.
These out-of-date assumptions about life expectancy are putting people’s retirement plans at risk. Amongst over-50s who are not retired and do not have a defined benefit pension, only 9 per cent plan to buy a product that provides a secure income for life, such as an annuity.
This could be down to a lack of knowledge, as one in eight (13 per cent) in this age group who don’t plan to buy an annuity don’t know which pension products offer an income for life.
Emma Watkins, annuities director at Scottish Widows, said: “Life expectancy has grown substantially in the last 60 years and now one in 10 people will live to be 100. As the concept of the three-stage life is becoming out of date, people facing into retirement are also facing a trade-off between saving more, working longer or having a clearer plan.
“Pension freedoms opened the door to new opportunities and flexibility for savers, but advice on the best way to put in place a stable, predictable income for life would give some comfort to those facing a retirement that could last more than 20 years.”
What is an annuity?
An annuity will provide you with a regular income for as long as you live. With an annuity:
- You know how much you’ll be getting and when
- You could be paid an income for the rest of your life
- There are a range of annuities to choose from
- Once you’ve bought an annuity, you’re locked in
Your initial level of income will be based on some of the following factors:
- Your age
- How long it is estimated you will live
- Where you live
You can normally take 25 per cent of your pension fund as a tax-free cash lump sum and use the rest to buy an annuity (which will be subject to tax).