£17,500 a year is all people expect in retirement
People's expectations of retirement are relatively modest with the top three desires being able to pay off debt, taking an annual two-week holiday abroad and being able to run a car.
Eschewing the idea that those thinking ahead to retirement expect to spend their time on luxury cruises and buying fast cars, it seems that what people really want is not to worry about making ends meet and not to experience a painful drop in living standards.
Meanwhile, the annual income required to lead a modest but comfortable retirement being able to cover the top three desires is just £17,500 on average, according to research by Barclays.
The amount needed to cover retirement desires varied slightly across the generations, with those aged 19 to 33 needing a bit more at £18.
The majority (93%) of those who took part in the survey, who all paid into a workplace defined contribution pension, see financial planning for later life as primarily their responsibility. However, two-thirds believe this responsibility should be shared with the government and 47% think their employer should play a role in planning for retirement.
Changes to pension rules announced in the last Budget will give people new financial freedom. From April 2015, retirees can release up to 100% of pension savings, and there were fears that people would spend irresponsibly in retirement. But the Barclays research seems to suggest otherwise.
This is backed up by new research from Friends Life, which reveals that only 7% plan to be 'Lamborghini' retirees, taking all their pension savings in a lump sum.
Under the new pension rules, the average amount people said they would release at retirement was 33%. One in four would consider taking 50% of their pension savings in cash at retirement.
Rather than funding a luxury lifestyle, 24% of those surveyed by Friends Life plan to reinvest the money, with the new Isa proving popular with 22% of consumers. Buy-to-let property was also a popular choice with 21% planning to be private landlords, while stocks and bonds appealed to 14% of future retirees.
The research also found that more than a quarter of future retirees are struggling to understand the new pension rules and don't know where to reinvest the money released from their pension savings.
Other reasons why consumers would draw down their pension savings is to pay off their mortgage (24%); have fun while still young enough to enjoy it (24%); go on an amazing trip (21%), and put money aside for a rainy day (20%).
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
Defined contribution pension
Often referred to as a “money purchase” scheme, although offered by employers (who may pay a contribution) these pensions are more likely to be free-standing schemes that a person contributes to regardless of where they are employed. Here, the level of benefit is solely dependent on the accumulated value of the contributions and their performance as investments. Therefore, the scheme member is shouldering the risk of their pension, as the scheme will only pay a pension based on the contributions and investment performance. The final pension (minus an optional 25% that can be taken as tax-free cash) is then commonly used to purchase an annuity that would provide an income for life.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.