Preparing to Retire: The Issues For UK Seniors
Some interesting data has emerged regarding the UK’s aging population and its preparedness to retire in comfort. The troubled housing market and the country’s economic and employment concerns are providing challenges for our retirement aged population. The tenuous nature of the country’s retirement planning is becoming a matter of national concern.
In a recent 15-nation survey, released in February 2013, the UK rates last in terms of retiree’s financial adequacy to handle retirement. 14 percent of UK respondents said they would access their retirement savings in order to spend now. More than 57 percent of respondents said they were more interested in saving for a vacation than they were in saving for their retirement.
The Department of Work and Pensions (DWP) estimates that millions of seniors are not saving enough to meet the rising costs of retirement. “Undersaving” is a national epidemic. To compensate for this lack of foresight, seniors are likely to have to work longer and access the equity in their real estate holdings.
But, the retirement planning industry faces many challenges, not the least of which is the decline in fixed income yields. The declining rates of annuities is adding unexpected pressure to prospective retirees. According to the Office of National Statistics, to earn fixed income of £5,000 per year, the investor’s deposit rate has increased by a whopping 29 percent since 2009.
ONS reports that in March of 2013, for an individual reaching the retirement age of 65, £152,800 would be needed to acquire an annuity that would yield £5,000 per year. In 2008, £118,000 was required to purchase such an annuity.
With the amazing advancements of the medical industry, the average Brit can expect to live into the 80’s. More than 52 percent of potential retirees says they want to retire at age 65, even though many do not have enough retirement income to meet their obligation after seven years. This is a threat to the economy and the social fabric of the country.
The ONS Trends Report indicates that for a male to receive £25,000 annually after age 65, he would have to have invested £590,200. Women have it worse. For a woman to accomplish the same income, she would have to have invested £677,700. To benefit from a £25,000 inflation-linked annual yield, retirees will have to accrue £763,900, an intimidating amount.
Malaysia Tops The List
Of the 15 countries considered in this study, Malaysia ranked number one in preparedness for retirement. Retirees in Malaysia can expect their savings to carry them 12 of 17 years into retirement.
The average American has enough savings to live comfortably for 14 of 20 years after retirement but many Americans are working into their 70’s. The average worker in China has saved enough for 10 of 20 years.
Other countries included in the study were the US, China, India, Brazil, France and Australia and others. The average Brit will be able to meet their obligations for about 7 years, or until age 72. With a life expectancy into the 80’s this leaves many unanswered questions.
The concept of retirement is constantly evolving and it seems that there are many people that aren’t fully prepared. People are living much longer in much tougher economic times, but expectations about the standard of retirement living remain unchanged.
A startling 19 percent of respondents indicated they had little or no savings at all. Most of these people cited the difficulties making ends meet in the current economy as the largest factor in their poor savings histories.
People throughout history have faced the problem of how to save for the future, and today’s savers are absolutely no exception. There are daunting challenges at the moment, but there is a solution: to plan earlier and be more prepared.
The Retirement Planning Model Is Broken
Government has taken action to ensure that pensions under £10,000 will be automatically transferred when an employee leaves one job in favor of another. This initiative will be implemented by 2015. Under the existing plan, each job creates a new pension for a new worker. This system worked when employees stayed with one company in one career for their life. For today’s employment market, this model does not work. 20 percent of pensions are misplaced or lost through paper handling.
According to many experts, most people that are approaching retirement have outlined their general income expectations on historical experience. However, with annuity rates at a record low, these expectations can often be considered optimistic. Many people who haven’t managed to save enough will attempt to maximise today’s income at the expense of inflation proofing and death benefits for their spouse in the future – this is the risk.
It is essential that investors do shop around the market for the best terms – to acquire an enhanced annuity where they can, whilst considering the most appropriate nature of annuity for themselves and their dependents.
Study by HSBC Holdings.
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