UK pensioners set for a dramatic fall in income

Old man worried

Working people in the UK should expect a dramatic decline in their income when they retire, with the average income falling by more than a third, according to government figures.

People will see their income drop by 39% on average when they retire, according to research based on data by HM Revenue & Customs.

The figures, compiled by annuity provider Partnership, show that while the average income for people in employment in the UK is £19,000, the average pension income is just £11,600.

The firm warned that retirees are likely to suffer "a nasty shock", unless they start to build up savings and investments ahead of finishing work.

Andrew Megson, Partnership's managing director of retirement, said: "While people in retirement are likely to have fewer outgoings, it is still hard to imagine that anyone would not feel the pinch if they lost a third of their income overnight."

Throughout the UK, those living in London suffer the biggest decline in income when they retire. They currently see their income nearly halve, falling from £20,300 to £12,000.

Those retiring in the East of England will also see a major reduction in their income, falling from £19,900 to £11,900, a fall of 40%

On the other end of the scale, those in Dorset saw their income decline by only 29% – from £17,000 to £12,000.

Find the best annuity rate for your circumstances

Too little, too late

Tom McPhail, head of research at Hargreaves Landsdown, said that when it comes to pensions, people typically "start too late, save too little and expect too much."

He added: "Everyone should take the time to find out how much is being paid into their retirement savings, what kind of income it might produce and when they can expect to retire. A comfortable retirement won't happen by accident."

Maximising your pension pot

  • Take the 'open market option'. This gives you the chance to shop around and make sure you find the most suitable annuity for you. Research by Lloyds TSB shows a retiree with a pension pot of £50,000 could earn up to £792 more a year by taking the open market option instead of accepting what their pension fund provider offers them. Currently, 60% of people in the UK don't shop around.
  • Check if you qualify for an enhanced annuity? Enhanced annuities are for those with health problems, paying out a higher percentage of your pension pot yearly.
  • Start saving now. Its never to early to start saving for a pension, and the more money you have to invest when you retire the more choice you will have in selecting the one that is right for you.

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Your Comments

If I lost a third of my income i would be living on less than £100 per week as my earnings are at teh moment due to working hours being cut. Millions of people in the private sector, especiallly retail have had their hours reduced to below 20 per week so that their employer do not have to enrol them in the new pension fund and therfore do not have to pay into it themselves. NOBODY IS TALKING ABOUT THIS ANYWHERE. IT IS BEING IGNORED IN FAVOUR OF MADE UP AVERAGES.

A couple of my friends have had their working hours reduced to below 20 hours a week so that their employer doesn't have to enrol them in the new pension fund.
Easy to do for employers with a lot of unemployment around!
And sooo good for government -
* double the number of employees working half the hours
*unemployment figures look much better
* job seekers allowance payouts are lower.
A great idea for government, bad for the nation and even worse for less skilled workers. 
I hope that voters will remember this at the next election!

Two minor pointes. When i retired I was aiming at a retirment income of two thirds of my pot. At the time I acheived it. Now it is much less due to
a Very low interest rates
b Increased tax due to the freezing of the age related allowance.
Seems to me, you are damned if you save and damned if you don't save!