Retirees want £21,000-a-year but 66% may see pensions run out

Could your pension run dry? Retirees want £21,000-a-year to spend – but two-thirds are warned their pension pots could run out

  • Many people who retired during lockdown could end up hard up for cash
  • Retirees need a pension pot of around £390k and the state pension, SLA says
  • Rising inflation means people look set to need even more cash in future years
  • But, some like Charles Wood, 65, are enjoying working in retirement 
  • Are you looking for financial advice? Find a financial adviser service 

Two-thirds of people retiring now are at risk of running their pension pots dry as they grow older, new research claims.

On average, retirees aim to spend around £21,000 a year in their retirement, which is nearly £10,000 less than the average household annual income across the country. 

Investment firm Standard Life Aberdeen says a retiree would need a pension pot of around £390,000 on top of their state pension income to cover a £21,000 a year spend over the course of a 30-year period.  

But it said that the average value of a Class of 2021 pension pot is lower than that at £366,000 – and a third admit to having less than £100,000 saved.

Will you run out of cash in retirement? Standard Life Aberdeen’s pension pot risk map

The state pension for the current year is £179.60 a week, which equates to just over £9,000 a year. ‘

Alarmingly, one in 20 plan to rely on this alone’, Standard Life Aberdeen said. 

It said inflation meant retirees would actually need ‘much more’ than £21,000 a year to spend in order to enjoy a comfortable retirement in future. Indicating that without substantial investment growth in retirement, many people’s pension pots will fall short of delivering what they hope for.

The extent to which retirees are at risk of running out of money during their retirement varies across the country.

Retirees in Yorkshire are at the greatest risk of seeing their pension pot run dry, while those in the East of England, Greater London and Wales are also far from out of the woods when it comes to having enough money for later life, according to the findings.

John Tait, retirement advice specialist at Standard Life Aberdeen, said: ‘Vast numbers of those retiring this year risk running out of money in their retirement.

‘Retirement is a marathon, not a sprint, and many could be going into it without sufficient preparation or planning.

‘Pension pots are without a doubt the most popular option for funding retirement, but it’s so important that retirees consider any other savings or assets they can use when deciding whether they can afford to retire or not.’ 

‘I’m working during retirement because I love what I do’

Clued up: Charles Wood, left, with his grandson, Wilf, two, right

Clued up: Charles Wood, left, with his grandson, Wilf, two, right

Charles Wood, 65, from south Manchester, enjoyed working in the medical industry supplying products such as replacement hips and knees and trauma items to hospitals and surgeons for over 30 years.

‘The pandemic pushed me over the edge to make a decision about my retirement’, he told This is Money. It compelled him to advance his plans to retire by a year.

Having done his own research and received professional financial advice, Mr Wood always knew the importance of saving for later life and has a number of workplace pensions, an annuity and savings, which will give him an income to last for 30 years. 

He hopes his retirement last year will give him more time to spend with his wife, three sons and four grandchildren, and the chance to enjoy old and new hobbies.  

But, he is also one of a growing number of retirees continuing to work. On a part-time basis, Mr Wood does some building maintenance and construction work, like laying patios and fitting kitchens. 

‘I’ve always had a passion for DIY and before I started work in the medical industry I’d worked with a builder’, Mr Wood told This is Money. 

He said: ‘I’m choosing to work in retirement because I love what I’m doing and I have the flexibility to select the jobs that I wan to do. For me, it’s about the fulfilment I get from getting the job done – something I don’t want to lose just because I’m no longer working full-time.’

‘I feel so relaxed at having more control over my day, but that doesn’t mean I’m not busy – I surprisingly have so much on now and I don’t know how I found the time previously to fit everything in!’. 

Mr Wood added: ‘My body will tell me when it’s time to stop work for good.’ 

For anyone starting out in their career Mr Wood recommends budgeting properly, starting to save into a pension and seeking professional advice as early as possible.

Working during retirement 

A growing number of people are continuing to work during retirement, with many enjoying the financial and emotional or social elements of a job. 

Some 56 per cent of those who retired in the past year do not plan to give up work altogether in their retirement, the research revealed. 

The Retirement Living Standards by the Pensions and Lifetime Savings Association shows what life in retirement could look like with three different levels of annual income

The Retirement Living Standards by the Pensions and Lifetime Savings Association shows what life in retirement could look like with three different levels of annual income

The coronavirus pandemic year has forced many people to revaluate what they want from their life and how they plan to fund it. 

Job cuts, market volatility and economic uncertainty have all played a part in making people stop and think about their pensions and money in later life. 

Worries about job security proved to be the most popular reason for seeking financial advice about pensions in the past year, the findings showed.

Mr Tait said: ‘While job uncertainty might seem a strange reason to get advice, this has been one of the most popular ones we’ve seen. 

‘Whether they have been made redundant, or are expecting to be when the furlough scheme comes to an end, for many a one-off payment like this could be an opportunity to unlock options not yet considered.’ 

Over a third also said they had concerns about their pension pot values dropping during the pandemic amid market volatility. 

‘I stopped work for good after being made redundant’

Karen, 61, lives in Scotland and sought advice about money in later life

Karen, 61, lives in Scotland and sought advice about money in later life

Karen, 61, lives in Scotland and has two children. She worked for a well-known retailer for around 16 years before being made redundant. At the time, she was also going through a divorce.

Karen, who has asked us not to publish her surname, admitted to This is Money that she was ‘absolutely clueless’ about pensions and eventually sought out professional financial advice.

She said: ‘I knew what I wanted from my retirement. What I didn’t know was whether what I had meant that I could take the plunge now, or whether I’d need to stay in work a little longer, and how much I could afford to spend in the years to come.’ 

At one point, she considered looking around for part-time work, but decided stopping work for good was the right decision for her.

For anyone starting out in their careers, Karen recommends ‘taking advantage of what comes your way’ when it comes to being enrolled in pensions and making the most of tax benefits. 

But, she also thinks it’s important to use money to enjoy life as well. ‘Life is too short and you need to enjoy it as well’, she told This is Money.

TOP SIPPS FOR DIY PENSION INVESTORS

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Forget the shares, can PensionBee sweeten YOUR retirement?

Planning for retirement is an important financial goal for most savers. Yet the complexity of pensions means that many remain uncertain about their options.

In recent years, we have seen a welcome focus on simplifying pensions and giving savers control over their money.

The app PensionBee has been creating a splash after it was valued at as much as £384 million ahead of its debut on the London Stock Exchange on Monday.

Pensionbee: Founded by former banker Romi Savova (pictured) allows users to merge pension pots

It allows savers to combine all their pensions in one pot, and has been praised by some experts for its user-friendly interface and simple fee structure.

The company has grown significantly since its launch in 2014, with 130,000 customers consolidating savings worth £1.5 billion.

But could it help you get your savings in shape for retirement?

How PensionBee works

Pensionbee was founded by 35-year-old ex-banker Romi Savova, with the aim of making it easier to locate and consolidate pension plans. 

It is a simplified version of a Sipp – a self-invested personal pension. The main difference is, instead of taking control of the investment process, customers choose one of nine pension plans.

These plans are not run by PensionBee, but by established pension providers, including HSBC, BlackRock and Legal & General. 

Each plan is subject to a preset annual charge – currently between 0.5 per cent and 0.95 per cent on the first £100,000, and half of this on anything over the threshold.

A pot of £150,000 invested in the tracker plan would have an annual charge of £625.

Tricky made easy

The app looks to reduce the admin of pension management by automatically contacting your providers on your behalf (once you have given their details).

Its website also explains how you can check for missing pensions, including via the Pension Tracing Service.

Once your money has been transferred, PensionBee provides a simple interface to keep tabs on your savings, make additional contributions or get an idea of how far your pot will go when you retire.

Though it doesn’t provide advice, it does have some safeguards to protect customers when it comes to transferring pensions.

Lost pots: Pensionbee's website also explains how you can check for missing pensions, including via the Pension Tracing Service

Lost pots: Pensionbee’s website also explains how you can check for missing pensions, including via the Pension Tracing Service

Some pensions shouldn’t be switched 

Whether or not consolidation is a good idea likely depends on what kind of pensions you hold.

Experts are wary when it comes to transferring so-called defined benefit pensions — the kind that used to be common in the public sector. 

As these pensions guarantee a set income based on length of membership, the implications of transferring out can be severe.

You are essentially giving up a guaranteed income, including protection against inflation, in return for an uncertain sum. 

The Government has brought in strict rules requiring anyone to obtain independent advice before transferring such a pension.

STEVE WEBB ANSWERS YOUR PENSION QUESTIONS

       

For defined contribution pensions, where you invest a regular amount, the situation is very different. Most experts agree there can be benefits from consolidation — particularly if you hold several different pots.

These may include lower fees, better performance or just making it easier to stay on top of your savings.

Even if the numbers add up, transferring might not always be risk-free. With withdrawals from pensions worth less than £10,000 treated differently under tax-free annual allowance rules, there can be advantages to keeping individual pots. Read more here.

Before you sign up, shop around

It’s worth checking what existing providers offer. Thanks to government and market pressure, many pension firms have improved their services, introducing their own online platforms and simplifying fees.

You should also look carefully at what else is out there and consider which option best suits your circumstances. 

Unlike more established platforms, PensionBee does not offer financial advice. That may be a drawback for anyone planning to take income from their pension soon.

More experienced investors may prefer a standard Sipp, or the kind offered by retail investment platforms, which provide more flexibility than the ‘one-stop shop’ approach of PensionBee. As always, pay close attention to the fees too — as these can greatly affect returns over time. 

PensionBee’s fees are cheaper than the industry average of 1.09 per cent, but some platforms offer lower rates on larger pots.

The investment platform Interactive Investor, for example, has a flat-fee structure, meaning that someone investing £150,000 over 20 years could be significantly better off. 

Do your research

There are some free services that can better help you understand your retirement options.

The Government’s Pension Tracing Service helps you find the details of any pensions of which you might have lost track.

With an estimated £400 million in unclaimed savings, it is worth checking if you are among those affected.

The Government is also looking to introduce its own Pensions Dashboard, which will give savers oversight of their different pensions.

Originally promised for 2019, the dashboard has now been delayed until 2023 — much to the frustration of campaigners.

In the meantime, it’s a gap that platforms such as PensionBee are more than happy to fill. 

Best (and cheapest) Sipps to invest your pension

Investing in a pension is a far simpler task than it once was, with a whole host of mobile, online and face-to-face options available today.

The right one for you depends on what you plan to invest in and how you want to manage your money. 

Charges and services vary and the best Sipp is the one that fits your personal circumstances. To help you work out what is best for you, we have highlighted the best and cheapest Sipp options in our guide.

> The best and cheapest Sipps to invest your pension

TOP SIPPS FOR DIY PENSION INVESTORS

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