Pensioners living on less than £10,000 a year

With 2007 barely weeks old, British pensioners have little to celebrate. New research from the Prudential UK highlights that the average pensioner income is currently just £12,151 a year, around £12,000 less than the average national income.

Prudential’s half yearly Retirement Index report into pensioner income and lifestyles finds that a staggering 40 per cent of pensioners, equivalent to more than 4.5 million people, live on less than £10,000 a year, with more than half (55 per cent) living on less than £15,000 a year. This highlights the need for today’s workers to save for their future rather than assume they will be able to live comfortably on the state pension alone.

Insufficient Income

With 25 per cent of UK pensioners stating that they are purely reliant on £4,381 a year (full basic state pension), it’s not surprising to find that one-in-four pensioners say their income is insufficient to enable them to meet their financial commitments and lead a comfortable retirement. The research highlights that pensioners on average would need an extra £4,206 a year to enjoy their retirement. In light of this pensioners have had to resort to other measures to supplement their income:

14 per cent of pensioners have been forced to return to work on a full or part time basis
Just over one in ten (11 per cent) have sold assets originally intended to be left as an inheritance for loved ones
10 per cent have borrowed money from a bank or from family and friends
Alarmingly, eight per cent have taken to gambling

In addition to the above and the recent rise in house prices, pensioners have not ruled out selling their most prized asset – their house. Some 12 per cent of pensioners are considering selling their property while three per cent have sold or part-sold their property and two per cent have taken out equity release schemes.

Cutbacks

It’s very clear that pensioners have had to cut back on life’s luxuries with 66 per cent reducing their expenditure in the past six months. This figure is up six per cent on the last Prudential Retirement Index in June 2006. Additionally:

31 per cent reduced their expenditure on clothing,
23 per cent cut back their spending on heating, electricity and other bills
16 per cent made economies on food and drink.

It’s not surprising that people are making cutbacks as they have additional outgoings in the form of loans. Worryingly more than two million pensioners (18 per cent) still have loans, mortgages and credit card balances outstanding, owing an average of £11,598 that they have to repay.

Financial awareness

Despite the widespread financial hardship facing many pensioners, just 23 per cent over the past five years reviewed their entitlement to means tested benefits, only 15 per cent went to see an IFA and five per cent reviewed inheritance tax planning.

In response to the findings, Prudential Retirement Income Director, Ali Crossley, said: “The retirement index demonstrates yet again the extent to which British pensioners are struggling to make ends meet and how far behind the rest of the population they are in terms of disposable income. The fact that 25 per cent of the retired population do not have any form of private pension is very alarming and we strongly encourage those who have not retired to see a Financial Adviser and ensure they have some form of savings vehicle or private provision in place.

“Planning early for retirement is paramount. For a pensioner to have an average UK salary, which is around £24,000 a year, a person needs to build up a personal savings or company pension pot of around £360,000, or £500,000 if you want to ‘inflation-proof’ it. It’s a lot of money, though achievable if you plan for retirement early, as the earlier you start the more time you have got to save.”

The findings are part of Prudential’s long-established Retirement Index – research published every six months to monitor pensioner income. The research asks pensioners whether they’ve had to make cutbacks and if so, from which area of spending. It also highlights measures they have taken to supplement their income.