£100,000 pension pot retirement income annuity, Digi Mart USA News: A pension pot worth £100,000 could provide an income of just £667 a month in retirement, according to new research highlighting the importance of understanding how far savings will stretch in later life.
Insurance and pensions provider Aviva found that more than one in ten (13%) working age adults believe £100,000 or less would be enough to support them throughout retirement. However, the company estimates that £100,000 could currently buy a single life annuity paying around £8,000 a year for a healthy 65-year-old, equivalent to approximately £667 a month.
An annuity provides a guaranteed retirement income, usually for the rest of someone’s life, in exchange for some or all of their pension savings. The amount someone receives depends on several factors, including their age, health, prevailing annuity rates and whether they choose additional features such as payments that increase over time.
Aviva said the £8,000 annual estimate is an illustration rather than a guaranteed offer and would be separate from any State Pension entitlement. The findings were published during Talk Money Week, which ran from November 2 to 6 and encouraged people to take manageable steps towards improving their financial wellbeing.
The research found that 56 per cent of working age adults worry they will not have enough money to maintain an adequate standard of living in retirement. Meanwhile, nearly three in ten (29%) have either not considered how much income they would need for a comfortable retirement or do not know the amount required.
Alistair McQueen, Head of Savings and Retirement at Aviva, said: “£100,000 sounds like a lot of money, but retirement can last for decades. That’s why it is helpful to think about a pension as the income it will need to provide, rather than the size of the pot as a whole.”
He added: “There is no magic number that will be right for everyone. Start with the retirement you want, work out roughly what it might cost and then look at whether what you have saved so far is on track.”
The research also highlighted the difficulties people can face when trying to establish how much they have saved. More than half of pension savers (54%) have two or more pension pots, while 62 per cent reported gaps in employment that could have interrupted their pension contributions.
Career breaks, periods without employment and changes in earnings can all affect the amount someone builds up in workplace or private pensions. Aviva also found that half of adults have little or no understanding of annuities, highlighting the importance of learning about retirement income options before making decisions about pension savings.
Mr McQueen encouraged people to track down pensions from previous jobs and become familiar with the choices available when they stop working. He said: “You do not need to become a pensions expert to get started.
Take a look at your pensions, track down any pots from previous jobs and get to know the choices you’ll have later in life.”
Aviva has suggested steps people can take to build a clearer picture of their retirement finances. These include considering the lifestyle they would like in retirement and the regular expenses they expect to face, and comparing those costs with the income they are currently on track to receive.
Aviva provides retirement planning calculators to help people estimate their future income.
People approaching retirement can consider several ways to access their pension savings, including taking cash, withdrawing money gradually from an invested pension or purchasing an annuity. Each option has different implications for income, flexibility and financial security.
More information is available through the UK Government’s retirement income guidance.
Savers are also advised to review the latest value and projected retirement income for each workplace or private pension, and to check their State Pension forecast to understand how much they may receive and when payments are expected to begin. Checking old pension paperwork or contacting previous employers can help identify savings that may otherwise be overlooked.
Periods away from work or changes in earnings can affect retirement savings, making it important to review contributions when circumstances change. People can also use the free MoneyHelper pensions guidance to learn more about planning for retirement and understanding their options.
Aviva stressed that the amount needed for a comfortable retirement will vary depending on individual circumstances, including housing costs, retirement age, other savings and the lifestyle someone hopes to maintain.
