Independent Financial Advisers Glasgow News & Guides

One in six people planning to retire this year will depend on the State Pension to fund their retirement as they have no other pension, new research from Prudential shows.

The figures come from Prudential’s Class of 2012 research, which provides insights into the financial expectations of Britons planning to retire this year.

Women are more than twice as likely as men to have no pension – 20% of women retiring in 2012 will depend on the State Pension compared with just 8% of men.

The average person planning to retire this year will look to the State for 34% of their income, with State Pension payments rising to £107.45 a week for single people. Company pensions (35%) are the second highest source of income, and the remaining 30% comes from a mixture of savings, investments, personal pension savings, part time work and money from family members.

The Prudential research also shows that one quarter of people retiring this year either overestimate by more than £500 a year what the State Pension pays, or simply do not know.

Regionally, people retiring this year in the Midlands are the most likely in the UK to rely on the State Pension (40%). This compares with a quarter (28%) of those in Scotland, who claim that they will be the least reliant on the state for their retirement income.

The Government’s proposals to equalise Guaranteed Minimum Pensions (GMPs) would create massive costs and administrative burdens, increasing pressure on pension funds at a time when they are struggling with a tough economic environment, pensions experts have warned.

GMPs are sums of money built up by members of occupational pension schemes who have contracted out of the State Earnings-Related Pension Schemes (SERPS). The Government claims that it has to legislate to put the UK in line with EU law.

The National Association of Pension Funds (NAPF) argued that new legislation being proposed by the Department for Work and Pensions (DWP) would cost pension funds billions of pounds in extra liabilities and administration, and could also affect public sector pensions.

In its response to the DWP consultation on GMP equalisation, the NAPF has urged the Government to scrap its proposed new regulations. It also questioned whether there is any legal requirement for equalisation, and it has asked the Government to publish the legal advice on which it is basing its policy-making.

The UK’s leading pensions body also warned that, instead of clarifying the situation, the planned regulations would create more uncertainty for pension fund trustees, who would not know whether or not they would have to equalise GMPs.

People retiring in 2012 expect to live on an average annual income of £15,500 – over £1,000 a year (6%) less than those who retired in 2011. The figures come from Prudential’s Class of 2012 research which provides insights into the financial expectations of Britons planning to retire in the next twelve months.

The results of Prudential’s annual survey, first carried out in 2008, show that expected annual retirement incomes have dropped by more than 16% in the last five years. The Class of 2008 retirees looked forward to a total annual income, including private, company and State pensions, of approximately £18,600 – £3,100 a year more than those planning to retire this year.

In a sign of the ongoing financial challenges facing those due to retire in 2012, one in five will get by on an expected annual income of less than £10,000. Meanwhile, around the country there is a regional disparity of more than £5,000 in expected retirement income. Londoners have the highest average expected incomes of £17,900, while those in Yorkshire and Humberside have the lowest at £12,800.

Fewer than two in five (37%) of the Class of 2012 say that they have saved enough to secure a comfortable retirement.

Men are more optimistic about their retirement than women, with 45% of men confident they will be financially comfortable compared with 31% of women. However, nearly one in five (18%) of those planning to retire in 2012 have no idea of the level of income they will need in order to live comfortably.

According to the International Longevity Centre-UK (ILC-UK), it is too often assumed that retirement is a one-off event, rather than a process. Yet there is increasing evidence that we are moving towards a process of ‘gradual retirement’, a concept associated with a wide range of opportunities that may be available to older workers, including downshifting within their current employment, moving into new forms of flexible and part-time work, and self-employment.

A recent publication from the Office for National Statistics has revealed that in September 2010 only 48% of female pensioners received a full Basic State Pension (BSP), compared with 87% of male pensioners. Many women in the current generation of pensioners failed to build up full or near-full BSP entitlement under the system in place before 6th April 2010, mainly because of broken work histories and part-time work patterns.