If you retire today, you’re ‘worse off’ than 10 years ago

It’s been revealed that the typical yearly pension pot in 2017 gives retirees just over half of what people received in 2007[1]. Research by Fidelity International, the investment solutions and retirement expertise provider, has shown that someone retiring between 2007 and 2017 will only receive an average of £6,607 to live off each year, while someone who retired between 1997 and 2007 receives £12,193. This means that people retiring over the last decade receive 46% less than they would if they had stopped work within the ten years prior.

What’s causing the pension drop off?

Fidelity believes that one of the main things affecting today’s pension pots is the real-term fall in wages. Back in 2007, people’s wages were 0.9 percentage points higher than Consumer Price Inflation (CPI), which basically means they had buying power and the ability to put more into their pension savings. However, in 2017, people’s wage growth is a whole percentage point under CPI, meaning we’re poorer and, according to Fidelity, paying £5,179 less into pensions between 2007 and 2017 as a result.

The situation isn’t helped by the fact that since the credit crunch, annuities aren’t offering as good returns. Market returns are also in decline.

What can you do to maximise your retirement income?

Ed Monk, associate director at personal investing for Fidelity International, says it’s important that people don’t “abandon hope” and suggests drawing down on pension pots, rather than annuities, to get greater flexibility with how you manage your income. However, it’s crucial to note that this approach can be risky and may not be for everyone.

Ed also recommends “maximising contributions to take advantage of any employer contributions on offer, as well as the help available from tax relief”. He added that “ensuring your pension money is invested to take a level of risk that you’re comfortable with, but that will give you a chance of decent growth” is also “sensible”.

Of course, the right option for you depends on your individual circumstances. It may be worth speaking to a financial advisor who can walk you through the options available to you.

Making ends meet until retirement

When there’s a pinch on your finances, it can feel like there’s a trade-off between making ends meet now and ensuring you can cope in the future once you stop work. For some, the former may win out, with people not saving as much as they should in their pensions to ensure they can live comfortably in the present.

The question now is ‘is there a way out of this situation?’ Once again, this may be were a financial advisor comes in, helping you identify ways you can make your money go further and maximise savings.

Keeping on top of your finances throughout your life and using credit smartly is also a good idea. Your credit report and score is the best place to start, as it gives you a 360 degree view of your accounts and any debt you may have, shows you were you may need to make improvements and gives you an idea of how lenders might perceive you.

Good money management, combined with effective saving and investments, can help you ensure that when the time comes to retire, you’re able to afford to do so.


[1] https://www.fidelity.co.uk/mediacentre/details.page?whereParameter=mediacentre/todays-retirees-see-income-almost-halve-since-financial-crash-of-2007