News releases

£160 billion retirement income gap

New research published by Schroders reveals that the average retirement income is a fifth (21%) lower than people anticipate it will be before they retire

05/10/2014

£160 billion retirement income gap

  • Average annual expenditure in retirement exceeds income by a third (33%) ƒ
  • 6.5 million people depend on dividends from stocks and shares for additional income to fund their retirement ƒ
  • £23 billion of savings and investments used to make up a retirement income shortfall during the last 12 months

New research1 published by Schroders, the global asset manager, reveals that the average retirement income is a fifth (21%) lower than people anticipate it will be before they retire. On average those in retirement have an annual income of £17,212, some £4,702 less than those still working expect it to be and around a third lower than average annual expenditure in retirement. Overall, there is a £169 billion shortfall between the income people receive in retirement and the amount they expected to receive.

According to Schroders’ research, average monthly expenditure among retired people is £1,904 and many are struggling to bridge the growing retirement income gap caused by the rising cost of living and inadequate income from annuities. Its analysis reveals this is partially attributable to the average pension pot totalling just £25,000 – enough to generate an income of just £1,250 a year, although many people have more than one pension and supplement this with other sources of income.

A third (34%) of retired people receive additional income from money deposited in cash savings accounts, while a quarter receive income from their partners pension fund. Some 6.5 million (14%) depend on dividends from stocks and shares for their additional income.

Over the last 12 months a third of retired people (3.8 million) have drawn on savings and investments to supplement their annual income. Collectively they have used an estimated £23 billion of their savings and investments over the last year to cover living expenses. On average, those tapping into their savings have spent around £6,197 during this period.

Robin Stoakley, Managing Director, Schroders’ UK Intermediary Business said:

“Rising livings costs and the potentially corrosive effects of inflation on annuities means that more people are supplementing their income with other investments. Despite this, there is a £160 billion void between anticipated retirement income and reality, which means that more retired people are dipping into their long-term savings just to make ends meet.”

Separate research commissioned by Schroders amongst Independent Financial Advisers (IFAs) reveals that 36%2 of financial advisers have seen an increase in investors looking to invest for income. Almost three quarters (72%) of IFAs think that the stock market represents the best investment opportunity for their clients.

Nick Kirrage, Co-Manager, Schroder Income Fund said:

“The level of income available from both cash and bonds today is low. However, there is often no need for retired people to erode their capital base to make up an income shortfall. If investors are willing to take on more risk than goes with cash deposits, a pragmatic equity income strategy can provide an enhanced income with protection against inflation, plus an element of longer term capital protection.”

For further information, please contact:

Beth Saint

Tel: +44 (0)20 7658 2589

Notes to Editors

  1. ICM interviewed a random sample of 2011 adults aged 18+ via online omnibus between 11th and 13th June 2010. Surveys were conducted across the country and the results have been weighted to the profile of all adults. ICM is a member of the British Polling Council and abides by its rules. Further information at www.icmresearch.co.uk
  2. George Street research surveyed a representative sample of 200 IFAs in June 2010
  3. Analysis of Moneyfacts data (No Notice, Notice, Variable Rate Bonds and Regular Savings accounts), 15 July 2010

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Schroders plc

Schroders is a global asset management company with £164.0 billion (EUR 200.3 billion / $245.4 billion) under management as at 30 June 2010. Our clients are major financial institutions including pension funds, banks and insurance companies, local and public authorities, governments, charities, high net worth individuals and retail investors.

With one of the largest networks of offices of any dedicated asset management company, we operate from 32 offices in 25 countries across Europe, the Americas, Asia and the Middle East. Globally we employ over 300 portfolio managers and analysts covering all the major investment markets. We offer our clients a comprehensive range of products and services.

Further information about Schroders can be found at www.schroders.com or on Schroders Talking Point www.schroders.com/talkingpoint. Issued by Schroder Investment Management Ltd, which is authorised and regulated by the Financial Services Authority. For regular updates by e-mail please register online at www.schroders.com for our alerting service.