45 per cent population not confident about their retirement future, says Guiide
Guiide, the online retirement planner providing, has analysed the latest figures from the ONS showing data on people’s thoughts towards retirement.
Guiide took three of the key data points to create a typical retiree, to show how much they need in total pension pots to achieve various types of retirement lifestyle. Assuming they plan to use pension freedoms and draw down a pension pot each year, it is apparent people are prepared to take some risk in their investments and may target an achievable 3 per cent return each year after charges. Buying an annuity (guaranteed income for life) is also an option, but will need a much larger pot, everything else being equal. As shown from annual retirement data, only around 20 per cent of retirees now take this annuity route.
Almost 60 per cent of those surveyed expect to retire between 65-69, so 65 is the estimate for the current retirement age. The vast majority (86 per cent) expect to get a state pension in their retirement income. They are in average health and would expect to need an income until nearly 90. They do not expect to retire in London (which is more expensive). They need to provide an income solely for themselves and consider the three Pension and Lifetime Savings (PLSA) Retirement Living Standards. (Females live a little longer on average than men, so any pension pot figures will be a little lower for men but are similar)
Guiide undertook five calculations, based on PLSA lifestyle standards:
- Minimum (increasing with inflation)
- Moderate (increasing with inflation)
- Comfortable (increasing with inflation)
- Moderate (flat, not increasing with inflation)
- Comfortable (flat, not increasing with inflation)
Approximately 45 per cent of the people surveyed by the ONS about their retirement provisions were not confident about their future standard of living in retirement.
However, as seen above, even a modest total retirement pot if drawn down correctly with a suitable plan can support a minimum inflation-linked retirement lifestyle. For moderate and comfortable lifestyles, much greater sized pots are required, however, the amount needed can be reduced by more than half, if inflation linking isn’t required.
Guiide’s findings suggest that 75 per cent of people desire an inflation-linked income in the plans they build with the company. For those targeting a minimum lifestyle, this would appear a necessity.
However, there is some evidence that shows spending actually decreases in real terms in the later years of retirement. Therefore, a flat income may be a preferable option for those with limited total pension pots but who desire an initial moderate or comfortable lifestyle in the early years of retirement.
They may be able to accept a more modest lifestyle in later years when they are less active, given the spending power of a flat income will reduce over time.
The calculations are an example of the pots needed for a particular person in a specific situation and everybody’s circumstances will be different. Since the pension freedoms came about, those wanting to use their pension pots flexibly essentially have two choices: either take advice on how to use them and have a plan built and monitored for them, or plan their retirement income themselves.
Guiide’s annual figures show a large proportion of people are not taking advice. Guiide’s and other industry polls have suggested over 80 per cent of pension scheme members do not receive any or enough pension planning help from those who they would expect to naturally be able to turn to, such as employers, providers, and schemes themselves.