Europeans far more likely to rely on the state in retirement

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People in the UK are less reliant on state pensions than elsewhere in Europe, according to a new study. We may be behind Asia and South America when it comes to taking control of our retirement income, and we may be saving a fraction of the sums that we need for a comfortable retirement, but things could be worse.

The Schroders Global Investor Study asked investors what proportion of their retirement income comes (or will come) from the state. Europeans put most hope in a decent state pension, with the average investor expecting it to make up 27% of total retirement income compared to just 14% in Asia and 12% in the Americas.

In the UK, meanwhile, the average investor expected the state pension to make up just 19% of their retirement income. Not surprisingly, on average, UK investors expect the largest contribution (32%) of their total retirement income to come from their company pension scheme and 17% to come via savings and other investments. They expect 12% to come from a personal pension, income from property rental to be 5% and 4% of total retirement income will come from part-time work.

The bad news

Before anyone gets carried away feeling too smug, it's worth pointing out that this survey only spoke to people who had already had a fair sum of cash in savings and investments - at least €10,000. If they had talked to people with less set aside for the future, the picture would have been far less positive.

As James Rainbow, Head of UK Financial Institutions and Strategic Accounts for Schroders says: "Most countries, including the UK, are facing gaps in the amounts being saved that may leave many investors with incomes that will fail to offer them a comfortable retirement."

So while we can take solace in the fact that the rest of Europe is struggling to save even more than the UK, it's up to all of us to face the reality of our own retirement income.

There are three important steps we should all take today.

1. Do the sums
It's essential to track down a pension calculator, enter the sums you have put into a pension so far, the amount you are currently saving, and calculate whether it's going to be enough.

2. Don't panic
If the calculations reveal a major shortfall, don't panic and give up entirely. You can make small tweaks to the calculator - looking at a later retirement date and small increases to your contributions. You may also be able to factor in your other half's pension income, a windfall from downsizing or an inheritance - which will make the overall shortfall less hideous.

3. Don't forget
Thinking about your pension isn't a 'once-and-done' kind of a thing. You need to revisit it regularly to see whether you can afford to put more money away, check whether you are on track, and make sure your pension investments are still right for you.

Only then can you afford to sit back and feel smug about how your own pension stacks up against the European average.

7 ways to improve your retirement
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7 ways to improve your retirement

If, like many Britons, you have failed to save the cash you need to maintain a comfortable standard of living in retirement, one option is to sell your home and downsize to a smaller property, using the money leftover to cover your living costs.
If moving out of the family home is too much of a wrench, however, the good news is that equity release schemes allow you to stay in your house or flat while still using the equity built up in it to provide some extra cash. The downside of the schemes, which work a bit like mortgages, is that you may not have much left to pass on to any children or other relatives.
But that's a small price to pay for a reasonable standard of living. For more information, try Age UK on 0800 169 6565.

Choosing the right annuity can have a significant impact on your retirement income. And as with most pensions, you automatically have what's called an 'open-market option' (OMO), you can scour the market for the highest annuity rate.
It is worth checking what your pension provider is offering first, though, as some companies offer guaranteed rates for existing customers that are likely to beat those available elsewhere. The Pensions Advisory Service on 0300 123 1047 is a good place to get some free advice.

On retirement, most people convert their pension fund into a guaranteed income annuity that pays out the same amount every month for the rest of their lives.
However, you can also choose an increasing annuity that pays out smaller amounts in the first few years but offers larger payments further down the line. This may prove a wise move if the rate of inflation remains at over 2%.

It is now easier to work later in life because the "default retirement age" has been scrapped.
People approaching retirement age and worrying about money can therefore choose to work for a few years longer - potentially transforming their financial situation. Other than the extra income from working, these people can look forward to higher state pensions, and higher annuity rates due to their greater age.
They can also benefit from bigger tax allowances and the fact that they no longer have to pay National Insurance contributions. Check out this nidirect website for more details.

You could get a much better rate with an impaired-life annuity if you have a medical condition that is likely to reduce your life expectancy.
Incredibly, even snoring, which is a common symptom of Sleep Apnoea could have an impact.
According to figures from MGM Advantage, a man with this condition could receive an extra £12,000 retirement income over the course of their retirement - or £571.44 extra money each year. Click here to find out more.

To maximise your retirement income, it is vital to ensure that you are receiving all the benefits to which you are entitled. These include the basic State Pension, and in some cases, the additional State Pension.
If you are on a low income, you could also qualify for the guaranteed element of Pension Credit, while those with some savings may get the savings element of this benefit. For more information about these and other benefits such as the Winter Fuel Payment, click here.

Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.
The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.


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