Pension income can come from private schemes, state pensions and other sources and according to Key’s latest “Retirement Ready” study on those planning to retire in a given year, average retirement income has risen by around £1,000. Despite this, many retirees are still struggling to get by.
According to Key’s research, the average expected annual income of those retiring this year is £21,663.
This is around three quarters of median £30,472 UK full time earnings and five percent higher than the expected income of those who retired in 2020.
Despite the pandemic, the expected retirement income for those who are planning to finish full-time work has grown from £20,663 in 2020 according to the ONS.
While some of this increase, according to Key’s analysis, is likely to be due to the 3.9 percent state pension increase seen in 2021/22, ONS has reported an increase in the number of older workers leaving the workforce so this bounce may well be due to some wealthier retirees actively choosing to stop work.
Key warned not all retirees can expect the same income in retirement however, with homeowners expecting to retire on £23,392, over two fifths (43 percent) more than those who do not own a property (£16,356).
People who have a partner or spouse when they retire expect to retire on £22,500 nearly a fifth (19 percent) higher than someone who is single (£18,900).
Additionally, Key’s “Retirement Ready 2021” research found over a fifth (22 percent) of this year’s retirees are expecting to have to live on less than the Joseph Rowntree Foundation’s (JRF) minimum income standard of £12,500. This rises to 37 percent of those who don’t own a property.
State pensions are also making up a larger portion of retirement income, which could be an issue as currently, state pensions pay a maximum of just over £9,000 a year.
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On average, around a third of retirement income will come from the State Pension (32 percent), a rise of four percent in 2020 (28 percent), with another third from company pension schemes (32 percent).
The next “most likely sources” are personal pensions (13 percent) and other savings and investments (12 percent).
Will Hale, the CEO at Key, commented on these results.
He said: “Retiring from work is going to take serious financial adjustment at any period and, while it’s great that expected incomes have increased this year, they are still only around a three quarters of the income level many will be used to while working.
“The retirement class of 2021, like their 2020 predecessors, are planning to retire in one of the most turbulent times in recent history, due to the pandemic.
“The economic uncertainty we all face means it’s more important than ever to plan finances and be aware of all income options for the years ahead.
“While homeowners are likely to be financially better off than those who don’t own property, they do need to factor in ongoing upkeep of their homes and also the unexpected expenses that most people on fixed incomes worry about.
“Using their property wealth to meet these costs or boost their income is certainly something that should be considered – especially as modern equity release products boast flexible features such as drawdown facilities, fixed ERCs and the ability to serve interest or make ad hoc capital repayments which makes managing borrowing in line with changing circumstances far easier than ever before.”
Ahead of reaching state pension age, people can get a forecast to find out how much income they’ll receive from their state payments.
The Government has a free-to-use tool on its website which allows users to find out how much state pension they could get, when they can get it and how it can be increased.
State pensions can only be claimed by those who have at least 10 years of qualifying National Insurance contributions.
To receive the full amount of £179.60 per week at least 35 years will be needed.
Currently, state pensions can only be claimed from the age of 66 but this will be increasing to 68 over the coming years.