People retiring this year need a pension fund of at least £130,000 to make up the average income of £12,500, as increased longevity means their money has to last longer, claims Prudential.
And it is not just this year’s retirees that need to save more. According to new research from Prudential, people retiring over the next 15 years will need even more money as the proportion of their pension made up from State benefits begins to decline and longevity continues to increase.
Those retiring now can expect to live till at least their early 80’s, but with State benefits only accounting for about half of the average pensioners income of £12,500, people still need to find over £6,000 from private pensions or savings to make up the difference.
Prudential suggests this means the average man needs a total retirement fund of £106,250 to last until 82, while women need £156,250 to survive until they reach 85, which works out at an average of about £130,000.
It also estimated the proportion of income provided by State benefits is set to decline from 50% to 44% by 2013 to 2014, while the Government Actuary Department(GAD) projections suggest life expectancy is likely to rise by at least another three years by 2020.
Prudential claims the number of over 65’s in the UK, will increase from 9.4m to 12.5m by 2020, while the Office of National Statistics (ONS) suggests this could lead to 775,000 people over the age of 65 still having to work in 2020, compared to just 582,000 now.
The company says today’s pensioners are waking up to the fact they will have a long retirement, with two in three expecting to live another 15 years, but they are not planning ahead.
According to Prudential 29% of pensioners overspend in their first year of retirement, with nearly one in 20 going £10,000 over their budget, at a time when the average personal pension fund amounts to around £40,000, which at current annuity rates, produces an income of just £2,000 a year.
Roger Ramsden, prudential executive director, says pensioner incomes have risen faster than average earnings over the past eight years, yet today’s pensioners are still grappling with a retirement gap which can only grow unless action is taken.
He adds: “Nearly one in five OAPs currently live on just £5,000 a year and one in three get by on £7,500. They are depressingly aware of the retirement gap, which for them is the gap between living a comfortable life and living on the breadline.”
“Increasing life expectancy is a prize previous generations would have been delighted to attain. All of us today ate lucky that we can expect to live longer, but it is essential we wake up to the financial implications and ensure we are able to enjoy our extra years,” says Ramsden.
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