"Millions heading for an impoverished retirement"

11/06/2010

Compelling evidence that millions of the UK’s over-50s population are headed for an impoverished retirement is today revealed in new research.

According to the retirement solutions specialists Partnership, over the past six years,  89%, of all annuity transactions have been for funds under £50,000. And over the same period in the past six years at least 77% of all annuity transactions have been for funds under £30,000.

“The figures demonstrate that, put simply, people are not investing anywhere near enough for their retirement years,” said Philip Brown, Partnership’s Head of Retirement Products.

“And with well over two thirds of all of those in the post 50 age group having less than £30,000 in an annuity – which at today’s rates would typically give an annual income of just £2,000 a year, or £40 a week, the burden on an already heavily stretched State is going to be massive,” added Brown.

The current State pension is typically £97.65 per week for a single person, and £156.15 per week for a married couple. The Government has pledged to 'triple lock' the way this rises in the future - each year going up by whichever figure is highest: inflation, wage rises or 2.5%.

“Put simply, our figures show that most average men and women retiring in the UK today can look forward to a State pension of under £6,000 per year, plus a private pension of around £2,000 a year.

“Today’s average wage for men and women is hovering around £26,000, so in other words they will be obliged to live on a reduction in income of up to 70% when they stop work” warned Brown.

Research conducted for PICA (by think tank Oxford Economics and the ONS) reveals that 23% of pensioners – or 2.5 million people – now officially live out an impoverished retirement.

 

Partnership says that the situation will deteriorate further unless more people make the appropriate savings and annuity choices open to them: the number of 65 year olds in the UK is set to increase from 9.9 million now to 15.5 million by 2030.

Partnership’s data has also revealed that the numbers of internal annuity transactions accounted for 62% of all annuities in 2009.

“In other words, the majority of people are not bothering to look outside of their pension provider for the best annuity deal on the market,” said Brown.

“These customers are far less likely to have access to ‘enhanced’ annuities which pay out more for specific medical conditions (just 0.5% of internal annuities are enhanced).

“Our research points to the fact that 40% of the population could qualify for enhanced annuities, which could increase their retirement income significantly,” he said.

“Just 10 % of all annuities sold in the UK are enhanced – which effectively means that millions of people are denying themselves a higher income in retirement. This suggests failure in the market, including access to advice and the complexity of the customer journey.”

“And in 2009 only 38% of annuities were transacted using the ‘open market option’ (OMO) despite the OMO being around for over 30 years now – it looks as if the big pensions and life firms are getting it all their own way,” added Brown.