Average retirement income up £1,000 but a fifth still below the minimum standard

The average expected retirement income of those who are planning to finish full-time work has grown by £1,000 in 12 months, despite the impact of the coronavirus pandemic, new research from Key has revealed.

The average expected annual income of those retiring has climbed from £20,663 in 2020 to £21,663 in 2021.

Key stated that this is around three quarters of the median £30,472 UK full time earnings, as well as 5% higher than the expected income of those who retired in 2020.

However, the equity release adviser’s ‘Retirement Ready 2021’ research found that over a fifth (22%) of this year’s retirees are expecting to have to live on less than £12,500, the Joseph Rowntree Foundation’s (JRF) minimum income standard. This figure increased to 37% of those who don’t own a property.

While some of the £1,000 increase to the average is likely to be due to the 3.9% State Pension increase in 2021/22, the Office for National Statistics (ONS) has reported an increase in the number of older workers leaving the work force. Key suggested that the bounce may be due to some wealthier retirees actively choosing to stop work.

Key CEO, Will Hale, commented: “The retirement class of 2021, like their 2020 predecessors, are planning to retire in one of the most turbulent times in recent history, due to the pandemic. The economic uncertainty we all face means it’s more important than ever to plan finances and be aware of all income options for the years ahead.

“While homeowners are likely to be financially better off than those who don’t own property, they do need to factor in ongoing upkeep of their homes and also the unexpected expenses that most people on fixed incomes worry about.”

Key’s research also showed that on average, around a third of retirement income will come from the State Pension (32%) – which is a 4% rise on 2020 (28%) – with another third from company pension schemes (32%). The next most likely sources are personal pensions (13%) and other savings and investments (12%).

Hale added: “Using their property wealth to meet these costs or boost their income is certainly something that should be considered – especially as modern equity release products boast flexible features such as drawdown facilities, fixed ERCs and the ability to serve interest or make ad hoc capital repayments which makes managing borrowing in line with changing circumstances far easier than ever before.”

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