Struggling in Retirement; People Planning to Retire This Year Expect to Be Living off the Lowest Average Incomes Recorded in Six Years, an Insurer Has Warned. VICKY SHAW Examines the Drop in Income for Older People
RETIREES in the North East this year will have an average income of PS15,100, making them around PS3,500 a year worse off than workers who retired in 2008, Prudential said.
The gap becomes much worse when taking into account the effects of inflation eating into people's budgets.
Someone who retired last year would have needed an annual income of PS21,400 to have the same spending power as an average person who entered retirement in 2008 on a typical income of PS18,700, Prudential said.
But the average amount people retired on last year was PS15,500, leaving them PS5,900 worse off in real terms than workers who retired in 2008.
Across Britain there is a PS5,700-a-year difference between the regions with the highest and the lowest anticipated incomes for people retiring this year.
Plunging annuity rates have wiped thousands of pounds off retirees' incomes in recent years, while pensioners have faced a perfect storm of high living costs and low returns on their savings.
Experts also warned that possible changes to the way that Retail Price Index (RPI) is worked out could lead to more people being forced to put their retirement on hold due to the squeeze on their incomes.
Tom McPhail, head of pensions research at financial services company Hargreaves Lansdown, said: "Annuity rates have fallen by a third in just four years. For people approaching retirement, that is a huge blow to their expectations at a time when it is probably too late for them to do anything about it."
Quantitative easing (QE) has been blamed for pushing down annuity rates which set the size of someone's retirement income for life. QE makes it cheaper for companies to borrow by pushing down the yield on government bonds, but annuity incomes are also based on these yields, meaning that new pensioners see their incomes reduced. Mr McPhail said: "Possible changes to the calculation of RPI this week are only likely to make the situation worse, as incomes could rise more slowly in the future. One consequence of this is that we are likely to see retirement ages rising quite rapidly for the simple reason that people can't afford to retire when they'd originally planned to."
The Office for National Statistics has been consulting on changes to the RPI and the recommendations from this will be announced on Thursday. …