The warning comes following the publication of Minimum Income Standards (MIS) by the Joseph Rowntree Foundation (JRF) reflecting the public’s views on how much weekly income is needed to achieve a minimum acceptable standard of living in the UK today.
The JRF’s 2018 report suggest the MIS for single pensioners is £195.90 a week with benefits such as State Pension and winter fuel allowance providing 93% or about £13.71 less than the minimum required. For pensioner couples the MIS is £301.92 a week, with benefits providing 90.3% or about £29.29 less than required.
Stephen Lowe, group communications director at Just Group, said:
“State Pension and other benefits don’t quite provide enough income for pensioners to achieve these minimum income levels so retirees will need to top-up using their own savings or pensions.
“The good news is that the sums needed are relatively modest, the bad news is that the financial regulator has described cashing in funds early ‘the new norm’ with tens of thousands taking small funds up front each month.”
He said a 65-year-old would need a pension pot of about £14,000 to generate a guaranteed income of £13.71 a week, while around £30,000 could provide £29.29 a week, based on current rates available on Guaranteed Income for Life solutions.
He said the MIS figures provide an important sense-check for anyone thinking of withdrawing pension funds. “It is important people don’t make pensions decisions they later regret and these MIS figures are a good first target although most will aspire to higher incomes and living standards.
“That’s why it is so important that people at least take the free and impartial guidance on offer and in many cases professional advice too. These are the best safeguards available and should be a normal step in the process of accessing pension money.”
Figures from the Financial Conduct Authority show around 600,000 pensions are being accessed each year. Seven in 10 savers accessing pension money for the first time are under 64 and nearly two-thirds of funds accessed are valued at less than £30,000, with 85% of funds worth less than £10,000 and 61% of funds worth £10,000-£30,000 being full cash withdrawals.
Three in 10 people do not have any occupational or workplace pension and will be relying on State Pension and other benefits for retirement, according to the FCA. Of those who have accessed pension money in a defined contribution pension in the last two years, more than one third (37%) said State Pension will be their largest source of retirement income while only one in 10 (9%) said their largest source would be from a final salary pension.
“The FCA found that more than half (55%) accessing pension money were aged 55 and four in 10 didn’t even think about leaving the money invested,” he said. “Nearly half (46%) said their pensions are not enough for them to live on.”
The JRF report also shows a weakening of State support for pensioners. In 2008 benefits provided 107.8% of the MIS compared to just 93% now for single pensioners. For couples the 2008 figure was 105.2% compared to 90.3% now.
Lowe concluded: “Effectively, State benefits have gone from providing more than the minimum socially acceptable retirement income a decade ago, to providing less today. That highlights the uncertainty that benefits for pensioners will continue to keep up with their most basic income needs and reinforces the need to make good decisions at retirement and to maintain some other sources of pension income.”
