Retirement: Average incomes plummet by 40% in retirement

Posted on June 7th, 2013 | Categories - News

iStock_000014493013_ExtraSmallNew research from Annuity provider, Partnership, shows retirees have to cope with a massive 40% drop in income compared to when they were working.

Partnership used HMRC data, to show that workers who enjoyed an average pre-retirement income of £19,000, see this plummet on average to just £11,600 when they retire.

Where you live makes a difference

The headline figure though masks some significant regional variations. The largest drop, of over 48%, is experienced by retirees living in London, whilst Wales saw the smallest fall; although pensioners here can still expect to see their income fall by around a third when they finish work.

The table below shows each region and the difference between pre and post retirement incomes:

RegionEmployment IncomePension Income% Change
London£20,300£12,000-48.05%
East England£19,900£11,900-40.20%
South East£20,500£12,400-39.51%
Scotland£18,900£11,500-39.15%
East Midlands£18,300£11,200-38.80%
West Midlands£18,100£11,100-38.67%
Yorkshire and the Humber£18,000£11,200-37.78%
North East£17,900£11,400-36.31%
North West£17,900£11,500-35.75%
Northern Ireland£17,400£11,200-35.63%
South West£17,900£11,600-35.20%
Wales£17,500£11,600-33.71%
United Kingdom£19,000£11,600-38.95%

The post retirement income figure includes all forms of pension income. However, excludes any income derived from savings or investments, which may help some wealthier retirees bridge the gap.

Responding to the survey, Andrew Megson, Managing Director of Retirement at Partnership said: “While people in retirement are likely to have fewer outgoings, it is still hard to imagine that anyone would not feel the pinch if they lost a third of their income over night. Even if their pension is topped up by income from savings and investments or part-time work, it is still likely to be quite a shock.”

Megson continued: ”In addition, many will have to stop working earlier than they intended because of health and lifestyle issues so may miss out on the opportunity to make additional financial provision and they are likely to find that the gap is even more profound.”

“However, people can maximise their pension income by shopping around and finding out if they are eligible for an enhanced or impaired annuity. While this is important for all those approaching retirement, it is particularly vital for those who live in more ‘affluent’ areas as if their provider uses post code pricing they may find they are worse off.”

Careful planning

Financial experts point out that careful planning during our working lives is vital, if people are to reduce the gap between their pre and post retirement incomes.

Most people cannot afford to pay enough into pensions to avoid a significant drop in income when they retire. So taking advantage of work place pensions, where employers will top up your contributions is vital; this will become easier when auto-enrolment is fully rolled out over the next couple of years.

It’s also important that people build up other savings and investments, by using their annual ISA (Individual Savings Account) allowance. This money can be used to meet other capital expenditure during retirement or produce an income to top up your pensions.

Finally, more and more pensioners are retiring with debt, with the repayments eating into already reduced income it’s therefore hugely important that as much debt is repaid as possible before retirement.

Do you need help planning for your retirement?

Our team of Independent Financial Advisers in Nottingham are experienced in developing retirement income strategies for clients the length and breadth of the UK.

If you are approaching retirement and would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email info@investmentsense.co.uk