July 8, 2008 | posted by Michael Baxter in Pensions | comments (0) |

A typical household in the UK will need funds of £413,000 and an individual living alone £326,700, according to the 2008 “Cost of Retirement” report by Life Trust Insurance.

The report, written by the CEBR (The Centre for Economics and Business Research) for Life Trust, provides an objective forecast of the amount of money a person would need to fund a retirement in the UK if they were  to retire at 65.

It warns that people need to factor in increasing longevity when planning their  retirement finances, with the cost of retirement for someone who lives to 100 soaring to £708,500.

The report also highlights that while current predictions of life expectancy are 85 for a man and 88 for a woman, these are set to rise significantly.

The averages alone are deceiving as they do not highlight the real chances of a person reaching an advanced age. For example, someone who is 55 today has a one in  four chance of reaching 95 and a one in 10 chance of surviving to 100.

Similarly, someone who is 35 today has an almost one in three chance of reaching 95 and a one in seven chance of reaching 100. Clearly, for every extra year, there will be extra expenditure.

The cost of retirement findings are based on a long-term forecasted inflation rate of 2.3 per cent, but the research warns that if inflation were to remain at around today’s level, the cost of retirement would rise to £1 million for the average person living to 100.

Taking a more extreme scenario, the report also highlights that if inflation were to increase and hit the 4.6 per cent level, the cost of retirement would reach £1.3 million for those who are expecting  to receive a telegram from the Queen.

The retirement spending gap between rich and poor for those living to advanced ages is over £1 million.

PARTYers (Pensioners in Active Retirement Travelling like Youngsters) in the top 20 per cent of income earners need on average £1.55m to fund their retirement years, compared to the BUS-PASSers (Buy Utilities on State Pensions, And no Surplus Savings) in the lowest 20 per cent who will need only £448,500.

Retirees with an average income, or GOLFERS (Getting Older, Limited Funds, Eeking-out Retirement Savings), would need £708,500.

Andy Briscoe, CEO of Life Trust, says: “People are living longer, healthier lives. This is great news but only if people have the finances in place to really enjoy their post-career years. The combination of rising life expectancy and the impact of inflation over time can have huge financial implications, and this report allows us, for the first time, to see the scale of these trends.

Age 92 is the most expensive year of retirement. Retirees’ spending differs greatly across their retirement years, with the latter stages of retirement being the most expensive. The annual cost of retirement for an individual peaks at 92 because at this age, because he or she is likely to be in need of expensive long term care, either at home or in a nursing home.

For those who dream of early retirement and stop work at age of 50 will need an  additional £373,000, or around £25,000 per year, to fund their retirement.

To find out your chances of reaching an advanced age visit www.longevitycalculator.co.uk

To see what your pension fund will buy you in the form of an annuity, visit
http://www.defaqto.com/consumer/pensions.aspx

Posted by Pamela Atherton

March 13, 2008 | posted by Michael Baxter in Pensions | comments (0) |

Are we saving enough?  We have a sneaky suspicion you know the answer to that question.   But here is something to make you think: our savings need to be greater to the tune of £1.4 trillion, or we are leaving a massive burden on future generations.  That’s what Martin Weale, the Director of the National Institute of Economic and Social Research said in the second Peston Lecture given at Queen Mary College yesterday.

“In France, Spain and Italy,” says Mr Weale, “wealth and saving are close to adequate. Consumption needs to fall no more than 2 per cent  in France, Italy and Spain. But the United Kingdom has a long history of low saving and needs to cut consumption by 8.5 per cent  if today’s adults are to avoid imposing a burden on future generations. The total wealth shortfall in the United Kingdom is over £1400bn, or the equivalent of about thirteen Northern Rocks.”

Mr Weale added, “Working five years longer removes the affordability problem faced by current adults in the UK. But the youngest group of the population would still find that they need to cut their consumption by just over 3 per cent  from current levels.”

The results for the UK are based on the assumption that savings earn a real return of 4.4 per cent  p.a. This is the average in the UK over the period 1989-2006 for the economy as a whole. Capital gains on land and housing are excluded from the calculated return because they represent a transfer of resources from future generations to the present.

Mr Weale said, “The Treasury has never discussed Britain’s overall savings position in the past and today’s budget follows the tradition of not paying proper attention to the sustainability of current consumption levels. These figures demonstrate the precarious position our economy is now in. The macro-economic framework should be amended so that policies are in place to ensure that we make adequate provision for ourselves without burdening future generations.”