Turning 65 this year? You can expect to enjoy two decades of retirement, according the Office of National Statistics.
New pensioners also can look forward to pensions reforms next April and the new flat-rate pension being introduced 12 months after that. But to the latest figures from Prudential reveal that when it comes to their own pension savings these new retirees may be underprepared for retirement. In order to provide the £15,800 annual income that the average pensioner would like in retirement, Prudential calculates that you will need a pension pot of £139,000 – and using the same assumptions, someone retiring in 2014 and living for another 30 years will need a pot of £154,000.
Vince Smith-Hughes, retirement income expert at Prudential, said the changes to pensions, savings and the rules around taking a retirement income that were announced in the Budget in March are good news but it was important to remember that pension pots are finite – and cash can run out.
“If retirees choose to draw income directly from their pension fund, they need to consider if it’s sustainable to take that level of income over an extended number of years,” he said.
One in three pension savers have already asked deVere Group whether they can raid their pot early – and the advisory firm has responded saying they “strongly advise against this as while the funds remain invested they still represent great tax efficiency”.
People entering into retirement should not underestimate how much inflation is likely to impact their purchasing power, warned Alan Higham, director of Retirement for Fidelity, this week. Inflation fell to 1.6% last month, but it is a poor measure of the inflation felt by those who have retired as the elements which rose in cost the most – fuel and food – make up a larger proportion of a pensioner’s budget.
“They should make sure their essential expenses are covered by secure income sources which will keep pace with inflation,” said Higham. “Those reaching State pension age before April 6 2016 should particularly consider using their private pension to defer State pension to increase their guaranteed inflation linked income.”