Article
Cash strapped pre-retirees raid savings
A report from insurer LV= says one in five people approaching retirement are reducing their pension savings by more than £300 a month
LV= says pre-retirees have seen their savings damaged by the economic crisis. Photograph: Getty/Image Source
Cash-strapped people over the age of 50 have reduced their pension savings by almost £18bn in the past 12 months, according to latest research.
The annual State of Retirement report, compiled by insurer LV=, shows that one in five of those approaching retirement have decreased their retirement savings by an average of £324 a month. This is more than double the £137 average reduction in retirement savings made by 20% of over-50s last year.
The report also found that fewer imminent retirees over 50 are saving sufficient amounts to maintain a comfortable lifestyle once they finish work, with one in three pinning their retirement hopes on economic recovery. The figure is even higher for the over-60s with 46% hoping for a substantial recovery in the UK to improve their retirement prospects.
Women approaching retirement appear to be feeling the effects of the recession and credit crunch more, with 23% cutting their monthly retirement savings by an average of £372, or £4,464 a year. In contrast, one in five men approaching retirement have reduced their retirement savings by an average of £265 a month, or £3,180 a year.
LV=, the UK's biggest friendly society, has urged tomorrow's retirees to look at alternatives to boost their income. Ray Chinn, head of pensions at LV=, said: "Britain's over-50s have already seen their pension pots damaged by the economic crisis, and now many appear to be diverting still more money away from retirement saving to deal with immediate pressures.
"We urge those already close to retirement not to give up on saving at such a crucial time. These days there are far more financial options available as you reach retirement age – everything from drawing an income while your pension stays invested to releasing equity from your home."
Increased savings, decreased awareness
Despite some improvement in equity markets over the past year, only one in 12 of Britain's non-retired over-50s have increased their pensions savings over this period.
People's awareness of their likely future income has fallen since last year when 63% felt they had a grasp on how much they would have to live on in retirement. Now only four in 10 of those approaching retirement have a "fair" or "good" idea of how much income they will have when they retire. A further 14% say they will be totally reliant on the state to support them financially.
The main factors behind this are the rising cost of food and utilities (cited by 74%), the lower interest rates available on their savings (66%), and the effects of the ongoing economic downturn.
Despite their concerns about financial security in retirement, just one in five over-50s have consulted an independent financial adviser for retirement planning advice. The number of over-50s going it alone with their retirement planning has increased 7% since the first LV= survey in 2008, with nearly two-thirds admitting they have never sought advice about their retirement.
Opinium Research questioned 1,557 British adults over the age of 50 for the survey. The UK's over-50s population is 21,573,000, according to the Office for National Statistics.
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User Comments
oommph
15 July 2010 11:17AM
"Women approaching retirement appear to be feeling the effects of the recession and credit crunch more, with 23% cutting their monthly retirement savings by an average of £372"
Can that possibly be true? Until recently 23% of *all* women approaching retirement were saving such a vast sum of money that the amount they have reduced it by is 5k a year. I thought a large number of women did not even work, let alone have far more than 5k a year to put in their pension. That 23% of all women must therefore mean about 70% of employed women!
Blimey, how much were the majoeity of employed women able to put into pensions before then every year? 10k? 15k?
Why have we been spun the idea for so long that therer is some sort of crisis with the pensions of women approaching retirement, then? This gives the impression a lot of women have been positively swilling in cash and pension contributions!
Sorry, but I suspect that is slack writing. The maths here is surely false.
Rillettes
15 July 2010 4:38PM
So, any income from short-term savings is perfectly useless when facing 5% inflation (that's RPI not the worthless CPI) and current income has to be used.
Not entirely sure I agree there - I'd far rather have £3888 in the bank being eroded by inflation than sit around moping and not save a bean!
No doubt someone will be along to mention benefits in a tick.
alsirrat
15 July 2010 9:53PM
I think pension saving is going to fall off a cliff. People have got the message from the government that if you save for 40 years Ministers can wipe out 10 per cent of its value on a whim eg switch from RPI to CPI without any rational basis to the decision. Why should you save in a pension scheme when that can happen? Steve Webb has put the final nail in the coffin of pensions. Well done the Pensions Minister you have done yourself out of a job.
nanstallon
16 July 2010 10:55AM
The hard fact of the matter is that if you are on modest earnings, there is no point in saving for a pension. All you will achieve is to disqualify yourself from means tested welfare benefits. Best to enjoy your money while you've got it; helps keep the economy going anyway!
I can see a lot of legal cases sometime in the future against the government for bad financial advice in telling everyone to save for retirement.
Watty145
16 July 2010 1:41PM
And let's not forget the other end of the scale where more and more young people are choosing not to join pension schemes at all - or indeed cannot afford to.
That's going to be another nice economic time-bomb for 30 or 40 years hence.
TrousEnFormation
16 July 2010 7:27PM
I have given up buying savings products from financial advisors.
They have never made a decent return, and the reason for that is quite simple. The savings company is always in first position, taking their annual "fee" and enough extra for a few bottles of bubbly at the AGM. They take this from the savings pot even in years when the investments are losing money.
As a result, even if the fund manager is any good at their job (which they often aren't), the returns will hardly ever beat the interest you can get in your average building society account, and you have probably locked in your money for the long-term as well.
My Scottish Widows regular savings endowment policy returned less than I had paid in (not even discounting for the time value of money) after 10 years during which the stock market was rocketing skywards.
People are often slow to catch on, but I think by now all but the slowest have cottoned on to this. What we need is some good old-fashioned Mutuals, where the managers are accountable to the savers and the profits are kept within the funds and distributed to policyholders, not spent on management bonuses.
becarefuloutthere
15 July 2010 9:21AM
Yet another example of truly broken Britain. A house price bubble that the Bank of England and the lenders constantly keep pumped up by delivering poor returns on savings and the use of quantative easing with the consequent impact on inflation.
People over 50 wil not have large mortgage liabilities so (foolishly) low interest rates do them no good and inflation does them harm. So, any income from short-term savings is perfectly useless when facing 5% inflation (that's RPI not the worthless CPI) and current income has to be used.
So we have the banks and building societies heading for another crisis and retirees heading for one also. Single parent families are the least of any government's concern.