Mind the gap - future pensioners face over £66,000 savings shortfall
New research shows that many people are likely to be disappointed when they retire, as they would need on average to save an additional £66,549 into their pension fund order to provide the income that they expect in retirement. Virgin Money, in association with Partnership, asked 2,000 people what they hoped for (£17,278) and what they actually expected (£12,359) in terms of annual retirement income.
This research showed that despite expecting 29% less income than they would ideally like in retirement, the typical pension pot (£51,452) at annuitisation still fell short by £66,549 of being able to meet their more modest expected income levels. This stems both from a misunderstanding of how much the state pension will provide and from a shortfall in saving into private and occupational pension schemes.
Given this shortfall in pension savings, people entering retirement need to ensure they achieve the maximum return when purchasing an annuity. One of the best ways to maximise pension income is to shop around when buying an annuity - called choosing the Open Market Option. Doing this can boost annuity income by up to 20%, however only 50% of people buying an annuity choose the Open Market Option, with the other half settling for the rate offered by their pension provider.
To help people make the most of their pension savings, Virgin Money has teamed up with annuity specialist Partnership to offer a Pensions Annuity Service. The simple, straightforward process provides customers with information about the options available for retirement income and annuity choice, using a carefully selected panel of annuity providers. The service is open to anyone looking for an annuity - not just those with a Virgin Money pension - and is available both online and over the telephone.
The potential benefits for customers of choosing the right annuity at the right price are significant. The National Association of Pension Funds and the Pensions Institute estimate that in aggregate pension scheme members lose between £500m and £1bn per annum in lifetime annuity income by not shopping around.
Anthony Mooney, Director - Investments and Protection at Virgin Money said "This research shows that, sadly, many people entering retirement are not going to enjoy the level of income they are expecting. Given this savings shortfall, getting the best possible return by choosing the right annuity is crucial, but the prospect of looking at different annuities can seem daunting."
"However, the potential benefits for pensioners from shopping around are huge, and that is why Virgin Money has teamed up with Partnership to provide a new service to provide all the information customers need, in a simple and straightforward way, to be able to make an informed choice. Buying an annuity is a once-in-a-lifetime decision which pensioners have to literally live with. The income is fixed for life and there are no second chances."