Average UK expected retirement income up GBP1k in a year
The average expected annual income of those retiring in the UK this year is GBP21,663 according to new research from independent equity release adviser Key.
This is around three quarters of median GBP30,472 UK full time earnings and 5 per cent higher than the expected income of those who retired in 2020.
This is the second year Key has run this unique “Retirement Ready” study on those planning to retire in a given year and allows us to contrast the finances and ambitions of 2,000 people who plan to retire in 2021 vs 2020.
Interestingly – despite the pandemic – the expected retirement income of those who are planning to finish full-time work has grown by GBP1,000 in 12 months, from GBP20,663 (2020) to GBP21,663 (2021). While some of this increase is likely to be due to the 3.9 per cent state pension increase seen in 2021/22, ONS has reported an increase in the number of older workers leaving the work force so this bounce may well be due to some wealthier retirees actively choosing to stop work.
Not all retirees can expect the same income in retirement with homeowners expecting to retire on GBP23,392, over two-fifths (43 per cent) more than those who do not own a property (GBP16,356). People who have a partner or spouse when they retire expect to retire on GBP22,500 nearly a fifth (19 per cent) higher than someone who is single (GBP18,900).
However, Key’s “Retirement Ready 2021” research found over a fifth (22 per cent) of this year’s retirees are expecting to have to live on less than the Joseph Rowntree Foundation’s (JRF) minimum income standard of GBP12,500. This rises to 37 per cent of those who don’t own a property.
On average, around a third of retirement income will come from the State Pension (32 per cent), a rise of 4 per cent on 2020 (28 per cent), with another third from company pension schemes (32 per cent). The next most likely sources are personal pensions (13 per cent) and other savings and investments (12 per cent).
Will Hale, CEO at Key, says: “Retiring from work is going to take serious financial adjustment at any period and, while it’s great that expected incomes have increased this year, they are still only around a three quarters of the income level many will be used to while working.
“The retirement class of 2021, like their 2020 predecessors, are planning to retire in one of the most turbulent times in recent history, due to the pandemic. The economic uncertainty we all face means it’s more important than ever to plan finances and be aware of all income options for the years ahead.
“While homeowners are likely to be financially better off than those who don’t own property, they do need to factor in ongoing upkeep of their homes and also the unexpected expenses that most people on fixed incomes worry about. Using their property wealth to meet these costs or boost their income is certainly something that should be considered – especially as modern equity release products boast flexible features such as drawdown facilities, fixed ERCs and the ability to serve interest or make ad hoc capital repayments which makes managing borrowing in line with changing circumstances far easier than ever before.”
Prospective retirees feel relatively optimistic about retiring this year, despite the ongoing economic uncertainty caused by the pandemic. Seven in ten (69 per cent) feel at least quite prepared financially for retirement, although half of these are still cautious (49 per cent).
One in six (18 per cent) of those planning to retire this year feel financially unprepared for retirement, more than doubling (38 per cent) for those who do not own a property. In comparison, those who own a property feel much more prepared for the years ahead. Three quarters (73 per cent) feel financially ready for retirement compared to just 41 per cent of those who do not own a property.
The highest retirement incomes are in London, at GBP24,857, which are around 39 per cent more than the lowest in Wales, at GBP17,813. The South East (GBP23,815) and East Anglia (GBP23,132) make up the three regions with the highest expected annual incomes in retirement.
In terms of attitudes towards retirement, those in London feel the most optimistic about retirement, with three quarters (74 per cent) feeling financially prepared. Despite not having the lowest expected income, people retiring in the North East are the least optimistic about the years ahead of any region – potentially due to seeing an 11 per cent YOY drop in their income – with a quarter (26 per cent) admitting they feel financially unprepared for their retirement.