Heading for retirement? Looking forward to it? Think again

Life on a pension seems pretty good right now. Pensioner incomes have doubled in the past 20 years and are now almost equal to those of the working population. Current retirees bought affordable housing before the boom, and may have cashed in on rising prices to create a nice nest egg to go with their generous final salary pension and triple locked state pension payments. Those approaching retirement could be forgiven for looking forward to this comfortable retirement. But they're heading for a horrible shock.

Figures for Aegon show that this really is a golden age for pensioner incomes. The average retired person currently receives £297 a week - up from £155 in 1995. The gap between retired incomes and working ones is now just 7%. This is a combination of a result of generous workplace pensions, robust state pension payments and the fact that many people are continuing to work part-time in retirement.

While working in retirement is likely to continue, however, Aegon warns that the other two pillars of pensioner wealth are under pressure.

Trouble ahead

We are heading for a defined benefit (DB) cliff edge - where we switch from a situation where most people who are retiring have guaranteed payments for life, to one where most retirees have a disappointingly small lump sum that they'll need to eek out for far longer than they expect.

While over 6 million people are now saving into a defined contribution pension as a result of auto-enrolment, these pensions are seldom as generous as the DB schemes they replace. Worryingly, many of those recently auto-enrolled are seeing only 2% of their pay being invested, which will come nowhere near making up the hole made by the absence of DB.

Those who are coming up for retirement will be the first group of retirees who have been so responsible for their own income in retirement, and the indications of whether they have done enough aren't good.

Faced with high living costs and family commitments, 92% of those aged 45-49 and 89% of those aged 50-65 say they struggle to afford to save for retirement - despite these historically being the years when people can most spare the cash to save for the future. This is partly because of the rising cost of housing, which has left people repaying the mortgage at a later age - which stops them fully focusing on retirement goals. Unsurprisingly, 57% of people aged between 50 and 64 stay they are worried they will run out of money during retirement.

At the same time, the government has said it will look into intergenerational fairness - putting universal pensioner benefits and the triple lock on state pensions under threat. Given that almost half of pensioner income comes from state benefits, this makes them very vulnerable to changes in future. It's no wonder that a third of people aged 50-64 are worried that state pensions will be less generous in future.

Steven Cameron, Pension Director at Aegon said: "Those approaching retirement could be setting false expectations if they want a similar level of comfort in later life to that of their parents or recently retired friends."

But what do you think? Are you looking forward to retirement? And are you sure it's going to be quite as comfortable as you hope?