In the last 5 years, 8 out of 10 retiring UK workers traded in their salaries for an annual pension income of just £8,000 - which includes the Basic State Pension.
With the average wage, as of March 2010, pegged at £24,000, this means a pension income that constitutes a drastic reduction in ‘buying power’ for the average worker.
UK pensions specialist Partnership’s estimates showed that 9 out of 10 retirees over the last 5 years had pension savings of £50,000 or less, and 8 in 10 (77%) had pension savings of £30,000 or less.
The latter group, based on currently low annuity rates of 6-7%, could expect an annual income from that of around £2,000 per year. Those entitled to the full Basic State Pension can add to that £6,000 including earnings-related top-ups, giving an annual pension income for 80% of retirees of £8,000 (although this may be supplemented by some pension credits, according to circumstances).
Pension income also lost by those in imperfect health
The situation is worsened by the fact that 4 in 10 retirees have less than perfect health** or lifestyle, but are unaware, in their pensions planning, that they can boost their pension income by up to 40%, by purchasing an enhanced annuity.
Insurers pay more to those who are expected to die sooner, due to health or lifestyle issues, by providing an enhanced pensions annuity. Despite this, those who are overweight, smoke, have high blood pressure or another ailment are often not informed of the enhanced option, when purchasing their pensions annuity. While people in the ‘unhealthy’ bracket represent 40% of those retiring, only 1 in 4 of them actually purchased an enhanced annuity in 2009. The other 3 in 4 lost out on thousands of pounds of pensions income.
For example, based on a man of 65 with pensions savings of £100,000, a standard annuity would give him annual pension income of £6,669 per year. However, if he declared he was a smoker, an enhanced annuity would raise this to £8,028 per year**.
*Source: Association of British Insurers ABI **Source: Hargreaves Lansdown
