New research published by Primetime Retirement has uncovered data showing that the income level for those aged 65 and over is on average 24% lower compared to those aged 55 to 64. The company gathered data from nearly 400 households which showed that the average weekly income (after housing costs and tax) for those aged between 55 to 64 was £318 per week, which works out at £16,532 per annum. However when the company examined the income for those aged 65 and over they found that the average income fell by nearly a quarter to just £242 a week, or £12,586 per annum. Primetime Retirement marketing director Stuart Wilson said there was…”…. a serious reality gap between the incomes people believe they will have in retirement and the incomes they actually achieve.” According to the Monster.co.uk website, the average UK salary for a British male is £30,207, which after tax would equate to around £22,932 per year. However to get this income level in retirement would require a pension pot of at least £450,000, assuming you are saving into a defined contributions pension, which the majority of pension savers are. The reality is that there is a vast discrepency between the average salary and the average income in retirement. With final salary pension schemes diminishing coupled with a lack of pension saving in general, this gap is likely to widen in the future unless there is a radical change in peoples attitudes to pension provision.
The research also illustrated the geographic divide in retirement incomes with those living in the South East enjoying the highest average income of around £376 a week. Contrast this with the North where the average income was just £220 per week. Gender also plays a part with the average over 55 male living on £354 per week, which is approximately 43% higher than the average female income of £202 per week. Mr Wilson also noted the difficulty for those who retire before they are 65 in dealing with a future fall in income. He said that….”…very few people who are working would be able to comfortably absorb a 24% income cut, even if certain outgoings such as mortgage repayments have gone, but that is the unfortunate reality for many in retirement. What makes the situation worse is that most are on fixed incomes with no prospect of income increasing.” He added that it was wise to keep your options open in retirement and to retain some flexibility. The main problem for those on fixed incomes, many of whom will have taken a level annuity, is that their spending power is eroded every year because of inflation. If we have a spike in the cost of essentials such as food, fuel and energy (as we have had over the past five years) this can make even day to day expenses become difficult to keep up with.
Another point worth noting from the data is that although the average weekly income from those aged over 65 was £242 (after housing costs and tax have been deducted), almost a third said their weekly income was under £150 per week, with 6% admitting it was under £50 a week or less. This shows millions of retirees are having to struggle on very meagre incomes all coming at a time of high inflation. This report by Citywire.co.uk shows that a fifth of all retirees are at risk of poverty with the fear of poverty in the over 65′s being higher in Britain compared to the EU average. Looking at some of the countries with a lower percentage of retirees being at risk of poverty it is surprising to note that the UK has a higher risk than Slovenia, Slovakia, Malta, Cyprus and the Czech Republic. The government is set to roll out auto enrolment this Autumn with the aim of creating millions of new DC pension savers. This may result in more of us saving for retirement but it is unclear just how far this will actually impact upon average retirement incomes in the future.