Articles - ONS Statistics and Retirement Pots


The latest figures from the ONS (Office of National Statistics) show some very insightful data on people’s thoughts towards retirement. Taking three of the key data points to create a typical retiree it is then possible to see how much they need in total pension pots to achieve various types of retirement lifestyle. Assuming like most they plan to use the pension freedoms and draw down a pension pot each year, it is apparent people are prepared to take some risk in their investments and may target something achievable like a 3% return each year after charges.

 By Kevin Hollister, Founder of Guiide
 
 Buying an annuity (guaranteed income for life) is also an option, but will need a much larger pot, everything else being equal. As shown from annual retirement data, only around 20% of retirees now take this annuity route. The Pension Freedoms have been very popular!

 An average retiree
 By creating a fictional female retiree based on ONS data it is possible to understand the steps to consider when creating a pension.
  
 Almost 60% expect to retire between 65-69. Therefore 65 is a good estimate for our current retirement age.
 The vast majority (86%) expect to get a State Pension in their retirement income. Therefore it can be assumed they will receive a full State Pension.
 They are in average health and would expect to need an income until nearly 90
 They do not expect to retire in London (which is more expensive)
 They need to provide an income solely for themself and consider the three Pension and Lifetime Savings (PLSA) Retirement Living Standards.

 (Females live a little longer on average than men, so any pension pot figures will be a little lower for men but are similar)

 The PLSA did some great work last year in showing in real terms what a lifestyle at these various living standards may look like. It is an excellent point of reference for anyone considering what they need in retirement.
 Income needed

 We have undertaken 5 calculations, based on these PLSA lifestyle standards:
 Minimum (increasing with inflation)
 Moderate (increasing with inflation)
 Comfortable (increasing with inflation)
 Moderate (flat, not increasing with inflation)
 Comfortable (flat, not increasing with inflation)

 Calculations
 
 Findings
 Worryingly approximately 45% of the people surveyed by the ONS about their retirement provisions were not confident about their future standard of living in retirement. 
  
 However, as seen above, even a modest total retirement pot if drawn down correctly with a suitable plan can support a minimum inflation-linked retirement lifestyle.
  
 For moderate and comfortable lifestyles, much greater sized pots are required, however, the amount needed can be reduced by more than half, if inflation linking isn’t required.
  
 Inflation linking
 Our own findings suggest that 75% of people desire an inflation-linked income in the plans they build with us in Guiide. For those targeting a minimum lifestyle, this would appear a necessity.
  
 However, there is some evidence that shows spending actually decreases in real terms in the later years of retirement. Therefore, a flat income may be a preferable option for those with limited total pension pots but desire an initial moderate or comfortable lifestyle in the early years of retirement.
  
 They may be able to accept a more modest lifestyle in later years when they are less active, given the spending power of a flat income will reduce over time.
  
 Individual plans
 The calculations are an example of the pots needed for a particular person in a specific situation and everybody’s circumstances will be different. Since the Pension Freedoms came about, those wanting to use their pension pots flexibly have essentially two choices:
  
 Take advice on how to use them and have a plan built and monitored for them
 Plan their retirement income themselves
  
 We know from annual figures that a large proportion of people are not taking advice.
  
 Our own (and other industry polls) have suggested over 80% of pension scheme members do not receive any or enough pension planning help from those who they would expect to naturally be able to turn to, i.e. employers, providers, and schemes themselves.
  
 Therefore our focus has been on helping those who choose the second option with our free-to-use pension planning tools.
  
 Summary
 Everyone is different, requires different income, has different elements to put towards this income, and wants to retire at different ages.
  
 Whatever the individual circumstances, everything should start with building a plan to achieve a retirement goal. It’s never too late, or early, to build one to help a greater number of people become more confident in their retirement provisions.

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