Plenty of us are prepared for a less-than-sumptuous retirement. We know that the days of living it up on cruise ships are numbered, and that we're far more likely to be relegated to pottering around the garden than hopping around the Caribbean. However, a new survey shows that things could be even worse than we expect.
In fact 6 million people who are currently over the age of 50 will retire on less than the minimum wage.
No pension savingsThe LV= State of Retirement Report found that the proportion of those over the age of 50 with absolutely no pension savings at all has reached an incredible 28%, which is equal to 6.25 million people. Unless something changes for them in the next decade or so, they are doomed to live on the state pension
At the moment, 1.2 million pensioners currently rely on just the state pension for their retirement, receiving up to £5,890 a year less than the UK minimum wage. So the next decade is set to see a massive increase in pensioners living on the poverty line.
The basic state pension equates to an annual income of up to £5,587 and averages at £9,672 a year when you take into account additional benefit income. This is up to 51% lower than the income someone in the UK working full time on the minimum wage would earn, which is £11,477 per year.
StrugglingThose involved in the survey were well aware of the horrible future that awaits them. When asked if they could live on the equivalent of the minimum wage in retirement, 43% said they couldn't live on that alone and over a quarter (27%) said they would really struggle.
For those who have private pension savings, the average income in retirement is currently £7,488 a year. When you combine this with the state pension many people are still only living on marginally more than the minimum wage.
Ray Chinn, LV= Head of Pensions, said: "It is worrying that so many people are saving little or nothing for their retirement "wages", instead expecting to fall back on the state pension. While working hard up to their retirement to bring home a decent wage, I'm sure many will be disappointed to retire with an income equivalent of less than the minimum wage. If more people reflected on their pension as a "wage" that they will potentially be relying on for over two decades, they might feel more inclined to plan ahead."
Unsurprisingly, 58% of those set to retire within five years have become more concerned over the last year about their financial situation and their level of savings for retirement. The biggest worry is the rising cost of food and utilities (76%), followed by the general poor state of the UK economy and national debt (63%). The effect of low interest rates impacting savings (61%), high inflation (61%) and the recent reforms to UK pensions (44%) are all major causes of concern.
Working longerFinancial pressure is lowering expectations of when the over-50s plan to retire; just over a quarter (29%) of over-50s not already retired have changed their expectations over the last 12 months and now expect to retire later in life. One in eight (12%) do not want to work past the age of 65 but know they may be forced to due to financial pressure.
The pressure on this group to save enough money is heightened for over a third (36%) who have had family members relying on them for financial support over the last 12 months.
Cutting contributionsWorryingly over a third 37% of women aged over-50 do not have a private pension, compared to a fifth (20%) of men. Of the women that do have a pension, 16% in or nearing retirement have decreased the amount they have put into their long term savings, by an average of £196 per month, with 15% of men decreasing their savings, by an average of £391 a month. Women have significantly changed their retirement expectations in the last year, as 35% expect to now retire later, compared to 25% of men.
Chinn concluded: "The long term impact of cutting pension contributions will be hugely detrimental to pensioners' buying power and quality of life in retirement. When approaching retirement people must consider all the options to make the most out of their pension pot, as there are many available - everything from drawing an income while your pension stays invested, taking an enhanced annuity that pays a greater income if you are not in perfect health, to releasing equity from your home. We urge those approaching retirement to seek specialist advice from a professional adviser."