Retirement does not mean the end to financial burdens, as four in 10 workers due to retire this year reveal they will have to offer financial support to dependants from their pension.
According to the latest Prudential survey those who retiring this year offer support to an average of two dependants to the tune to £3,000 a year. Considering the average pension pot is just £36,800 which at current supressed annuity rates would buy you a retirement income of just £1,340 a year this is a considerable drag on pensioners’ finances.
This year’s retirees are the victims of the sandwich generation – left to support both their parents and children in the face of high youth unemployment and rising care bills. A quarter of those surveyed said the extra burden meant they would not be able to leave any inheritance, and their own standard of living had been affected.
To make matters worse workers retiring this year are also having their finances squeezed by the system as well as by their loved ones. According to stock broker Hargreaves Lansdown annuity rates have dropped by almost 20% since March 2009, falling from an average of 7.2% to 6% - resulting in thousands fewer pounds a year for pensioners.
Despite an uptick in rates last year, thanks to rising gilts this year’s new pensioners are finding prices are even less competitives. Those approaching retirement only get one opportunity to secure the rate at which they secure their retirement income and so many workers are putting off retiring in the hope that annuity rates rise in the future. In fact, annuity sales fell 16% in 2013, as more workers delayed retirement – and the point at which they would have to buy an annuity – or found alternative ways of drawing their retirement income.
Delaying retirement is not an option for all however, and so it is crucial that those approaching retirement shop around for an annuity and exercise their open-market option. The pension provider you have saved up your retirement pot with may not offer the most competitive annuity rate and shopping around can boost your retirement income by up to 40% - negating the fall in income since March 2009. According to pension advice firm IncreaseYourPension.co.uk as many as 25% of people approaching retirement are unaware they are allowed to shop around for an annuity provider.