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Savers plan for an ideal retirement income of £22,500

  • Over 55s with defined contribution pensions who plan to buy an annuity say £22,500 is the ideal retirement income
  • Little difference between genders, with men looking for £22,900 while women say £21,500 is ideal
  • Differing expectations of the ideal retirement income driven by size of pension pot – pots valued under £200,000 looking for an income of £20,000, while pots valued over that would like an income of £28,300

 

New insight1 revealed today by Canada Life suggests people approaching their retirements and planning to buy an annuity would ideally like an annual income of £22,500 on average. This ideal income equates to a moderate living standard, according to the PLSA retirement living standards2.

 

While the research showed little difference between the sexes by way of ideal incomes in retirement, pension pot sizes do have a clear effect on the expectations of what those pensions will deliver by way of income. For those whose pension values are under £200,000, £20,000 was the average ideal retirement income, while for those whose pension is over £200,000, the figure is £28,300. This figure is closer to the comfortable retirement living standard as calculated by the PLSA.

 

Living Standards

 

When asked about living standards, pre-retirees were split on whether they expect the same standard of living as they have now. 46% of respondents thought their retirement living standards would remain as today, while 36% said they would get worse. An optimistic 10% of respondents think their living standards will be better in retirement than they are now.

 

Twice as many men than women are optimistic their standard of living will improve in retirement (12% vs 6%), with more women saying they feared living standards would fall compared to men (38% of women vs 34% for men).

 

Pension values have a significant baring on the positivity towards retirement living standards, with 20% of pre-retirees with pensions valued at over £200,000 saying they think their living standards will be better, compared to 8% whose pensions are valued at less than £200,000. Although one in four (26%) of those with pensions over £200,000 thought their standard of living will fall in retirement, compared to 40% whose pensions are valued at less than £200,000.

 

Nick Flynn, retirement income director, Canada Life commented:

 

“A generation of savers planning their retirements have relatively moderate ambitions for their ideal incomes. Far from splashing the cash, the over 55s are seeking an income of around £22,500, which combines both private savings and the state pension of around £9,339 currently. This requires the pension and any other savings to generate an income of around £13,161 a year.

 

“At current standard annuity rates, a pension of £200,000 could deliver around £10,000 a year guaranteed for life, likely to be more for those who qualify for enhanced rates and a better income because of their health or lifestyle.

 

“Buying an annuity is a significant financial step and an adviser or annuity broker will be best placed to help understand the choices available.”

 

  1. Source and methodology: 506 UK adults aged 55+ with a defined contribution pension, who are not yet taking an income and plan to buy an annuity. Fieldwork by Opinium between the 15th – 26th October 2021.
  2. Source: https://www.retirementlivingstandards.org.uk/