Basic UK retirees pension requirements top £10,000 per year
Written by Philip Howell-Williams on April 14, 2015.
Basic living costs for the average pensioner in the UK total £10,387 per annum with the biggest amounts allocated to food (£1,563) and housing and fuel (£1,485). And we are talking basic here - those figures make for a retirement of penury rather than comfort. £1,563 per year spent on food averages out at just over £30 per week, which is not going to be buying you fine steak, foie gras and oysters!
The most concerning factor with regard to these figures is that they are greater than the amount received by the majority of retirees in state pension to the tune of thousands of pounds. The average state pension under the new flat-rate scheme which comes into force in April 2016 will be around just £8000 per year. However many retirees will not even receive that much, depending on whether they contracted out of the top-up state pension and whether they have made National Insurance contributions over the required number of years. That means that even to cover the basic necessities, let alone to have something set aside for emergencies, the vast majority of people reaching pension age in the UK will need retirement income from alternative sources.
Some retirees will be lucky enough to have a workplace pension to help make up the shortfall, others will be reliant on a private pension and income from other investments. Those with no other source of income will continue to have to work part-time in order to make ends meet. To avoid that fate for yourself, it is key that you are making adequate provision for your retirement. A professional financial advisor such as myself can help you review your own personal situation and work out what steps need to be taken to get you on track for a comfortable retirement.
For those reaching retirement age, it is critical to make your pension pot work for you in the most efficient way possible. This will become of increasing importance to UK pensioners as new rules come into effect next year on pensions giving over-55s access to their retirement savings in the form of a cash lump sum. It is expected that a high percentage of this demographic will take this option but they will need to invest that cash wisely in order to make it last through a retirement which could stretch over 40 years or more.
The just published, annual Family Resources Survey by the Office of National Statistics suggests that 41% of those eligible will take the cash out of their pension and put it into savings. That is all well and good as long as those savings are keeping pace with inflation. If they fail to do this, they will effectively be losing value over the course of an individual’s retirement. This in turn means that retirees will not be receiving a sustainable income to cover those £10,000+ of basic living expenses, in fact, their income will actually be falling, and their standard of living will inevitably fall as a result.
The same survey suggests that 72% of over-55s are not happy with taking investment risk, even with the carrot of increased returns. Consequently, they are sticking with cash even though over the long term, other forms of asset such as shares and bonds are likely to perform better.
Of course, there is some risk to all forms of investment but the key is in balancing your tolerance to risk with the potential gain. A good financial advisor can help you do this and put together a suitable portfolio of investments which will perform better than money in the bank and guarantee you a more comfortable retirement.