New research from abrdn (formerly Standard Life) has found that when it comes to funding retirement, one in five (20%) of UK adults set to retire this year plan to use their State Pension as their main source of income.
This is despite the fact that the State Pension’s annual increase is currently running below inflation, meaning its value in real terms is declining at a time when recipients are struggling with a cost of living crisis.
Which means for someone retiring on the full New State Pension of £185.15 per week, the purchasing power of this money will be less.
In its second ‘Class of’ report, surveying 2,000 recent and future retirees, abrdn reveals a worrying lack of preparedness.
Only a quarter (25%) of this year’s retirees feel very confident that they have saved enough for their retirement.
This lack of preparation is one of the reasons underpinning a new trend of ‘flexi-retirement’ revealed by abrdn, with 66 per cent of new retirees continuing to work in retirement in some form.
Almost a quarter (22%) of those planning to continue working say they are left with little choice due to the cost-of-living crisis.
Meanwhile, more than a quarter (27%) of those retiring in 2022 say they don’t know how to mitigate the impact of inflation on their retirement income, while a fifth (20%) are retiring later than they initially planned as they haven’t saved enough.
Commenting on the findings, Paul Titterton, a digital retirement advice expert at abrdn, said: “It’s worrying enough that one in five people are intending to rely solely on the State Pension to fund their retirement, but this is happening at a time of high inflation and the cost of living crisis, meaning we are likely to see a growing retirement poverty gap.
“While the State Pension is a vital part of funding retirement, it’s crucial that retirees also weigh up any other savings and assets that they may have on making the decision on whether they can afford to retire, including any funds they have built up through auto enrolment at work.”
The Pensions and Lifetime Savings Association sets out several types of lifestyles and how much it would cost retirees each year to fulfil that living standard.
According to this, the minimum income needed on top of the State Pension per year to cover all basic needs and expenses is £1,272.
However, for someone aiming to enjoy a moderate retirement with more financial security and flexibility they will need an extra £11,172 of income on top of their full State Pension each year.
Abrdn’s financial experts calculate that to have the required extra for the moderate lifestyle consumers will need a pension pot of at least £326,000 to retire at 67 years old.
This will allow for a moderate lifestyle including two weeks in Europe and a long weekend in the UK every year - you could also replace your 3-year-old car every 10 years.
That amount jumps to £454,000 for those wanting to retire at 60 years old, or £540,000 if they wish to retire from the moment they can access their personal pension at 55 years old and have their pension pot last throughout retirement.
Retirement age and estimated savings needed to live minimum and moderate lifestyle:
- 55: between £162,000 and £540,000
- 60: between £110,000 and £454,000
- 62: between £81,000 and £410,000
- 65: between £50,000 and £353,000
- 66: between £39,000 and £335,000
- 67: between £36,000 and £326,000
Abrdn’s research is showing that some consumers put off thinking about retirement because they don't know who to turn to for help.
To highlight this lack of preparedness, abrdn has launched a new campaign designed to encourage consumers to seek advice under the premise of ‘It’s ok not to know’.
The service offers a free personal one-to-one telephone consultation with a financial planner and access to a free digital retirement calculator, all designed to help consumers take control and decide whether they need advice from a professional.
For more information, visit abrdn.com, here.
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