Over 6 million over-50s could receive the equivalent of half the minimum wage income upon their retirement, according to a new report. In addition to this, around 80% retirees have failed to make any provisions at all for ill-health or care costs.
Pensions less than minimum wage
The basic state pension currently provides an annual income of £5,587 which is 51% less than the minimum wage salary of £11,477. Liverpool Victoria’s State of Retirement Report has revealed that 28% of Britons aged over 50 have no retirement savings in place and are likely to rely solely on their state pension.
Presently, 1.2 million retired Brits are living on their state pension offerings. This is set to rise to an estimated 6.25 million due to a lapse of long-term planning from Britons aged over 50. Even with the contribution of other benefit incomes such as pension credits, the maximum state pension package equates to £9,672, still considerably less than than minimum wage for a full-time worker.
The figures did not correspond with retirees’ opinions. 43% of respondents said they would be unable to live on a pension equivalent to minimum wage and 27% said that it would mean that they would ‘really struggle’. Over half those retiring soon are becoming increasingly worried about the provisions that they have in place and their financial situations. The majority of respondents put their concerns down to rising utility and food costs and the state of the economy in the UK.
Over 50s with private pension plans in place also face apprehensions with the average saved annual income at £7,488. This combined with receipt of the state pension provides pensioners with scarcely more than a minimum wage income.
Head of Pensions at LV, Ray Chinn stated:
“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."
Failure to prepare for the cost of healthcare
A separate report by Prudential highlighted another concerning consequence of retirees’ failure to save sufficiently. The findings of Prudential’s ‘Class of 2012’ research showed that just one in five people retiring this year had ‘made financial provision for ill-health in retirement’.
The study explored both the financial situations and the financial expectations of people hoping to retire in 2012. Overall the figures showed that over half of those planning to retire this year have overlooked the likelihood that they may need more income as they get older. Prudential found that just 20% of the respondents had made financial provisions for the cost of care in the event of ill-health. Over 65s were even less prepared with just 16% having financially prepared themselves for possibility of healthcare costs.
The levels of preparations showed regional variations with just 7% of those in the Eastern regions having made financial provisions. People in Wales were most prepared at 32%.
Life expectancy for men over the age of 65 is currently an average of 17.6 years and 20.2 years for women. However healthy life expectancy figures are considerably less at 9.9 years for women and 11.6 for men.
Prudential’s retirement expert, Vince Hughes stated:
“Although life expectancy is increasing, healthy life expectancy is flat-lining...It is important not to forget that health will worsen as pensioners get older. Making financial provision for the possibility of ill-health in retirement should be an integral part of the retirement planning process."
The Dilnot Commission on the Funding of Care and Support proposed that an individual’s contributions to care costs should stopped at £35,000 and the rest funded by the state. This notion is presently under consideration by the Government.