Official figures reveal a substantial gap between the ideal retirement income and the income people are likely to get.
Retirement income specialist MGM Advantage has analysed data from the Office for National Statistics (ONS) in order to estimate the current size of the “retirement gap”. According to the ONS, the ideal retirement income is two-thirds of our pre-retirement salary.
With the average income before retirement currently at £33,288, the threshold for “ideal” retirement income is £21,970. Average retirement incomes are lagging behind, coming in at £16,016 - that’s a shortfall of almost £6,000 a year.
It has been estimated that plugging this gap would require a pension pot of £100,000 - for someone intending to purchase a standard annuity. For couples wanting a joint annuity, this figure would double.
These calculations don’t factor in people taking tax-free lump sums from their pot - in reality it would likely need to be larger.
The research highlighted some regional variation, with those retiring in the North East and East of England feeling better off than those in the South East and London.
Andrew Tully, Pensions Technical Director at MGM Advantage, commented on the findings:
“These figures show the true scale of the problem facing people approaching retirement. There is a chasm between savings and the ‘ideal’ retirement income, which should serve as a wake-up call for many people.
“The scale of the challenge becomes even scarier if want your retirement income to keep pace with the cost of living and provide for your spouse. There are options for people who might have left saving for retirement too late, for example you could consider delaying retirement, continue to work part-time, use equity release or even downsize your home.
“The recent changes brought about by the Budget potentially provide more choice for people looking to generate a retirement income. But you still need a sizable pension pot or other savings to draw on to provide a sustainable income. Seeking professional financial advice can make a big difference to the value of the retirement income you could get.”