Early retirement could be uncomfortable for many, says Norwich Union

Article date: 26 March 2002

Research by Norwich Union, the UK’s largest insurer, showsthat 60 per cent of stakeholder pension customers plan to retire atage 60 or earlier.

However, too many stakeholder customers are paying insufficientcontributions into their plan to ensure that they have acomfortable amount to retire on at their desired retirementage.

For example, 77 per cent of stakeholder customers between theage of 31 and 45 are paying less than £150 a month into theirplan.

The impact of this could be stark for someone planning to retireearly.

For example, a 35 year old male, paying £150 a month into astakeholder pension and planning to retire at 65, would have aprojected pension pot of £149,000 at retirement and a pension of£13,700 (based on investment growth of 7 per cent a year andinterest rates of 6 per cent at time of retirement).

However, using the same example, if you bring forward theretirement date by five years to 60, then the customer would have aprojected pension pot of £46,000 less ­ at £103,000 ­ and a pensionof £8,430, which is 38 per cent less.

Commenting, Louise Goffee, spokeswoman for Norwich Unionsaid,

“Stakeholder has undoubtedly given impetus to the pensionsmarket, however, most people want to retire as early as possiblebut are simply not doing enough about it. Unless people contributemore, their chosen retirement dates could end up being no more thanwishful thinking.

"Anyone who is unsure about the financial implications ofretiring should seek professional advice from their financialadviser.”

-Ends-

Press office contacts:  
Out of hours
James Evans,
head of media relations
08703 66 68 7807790 487105
Louise Goffee,
media relations manager
08703 66 68 7007810 057362
Ian Beggs,
media relations manager
08703 66 68 7107790 487533

Notes to editors:

Analysis of the retirement ages selected by those taking outindividual stakeholder pensions with Norwich Union shows that:

  • 46% of customers chose 60 as their retirement age,significantly ahead of the 33% of customers who chose 65 as theirretirement age
  • 95% of customers are planning to retire on or before 65
  • 62% of customers plan to retire on or before 60.
  • 14% of customers are planning to retire in their fifties.
  • Only 4% of customers plan to retire at 75.

However, customers are generally paying too little into theirpension to achieve a comfortable retirement.
Amongst the 18 to 25 age group, over 90% of customers are payingless than £150 a month into their stakeholder.
Amongst the 31 to 45 age group, 77% of customers are paying lessthan £150 a month into their stakeholder.
The impact of this on a 35 year old’s ability to retire at 60compared to 65 can be seen from the examples below:

 
Male aged 35, planning to retire at60
       
Monthly contributionPension pot if
his investment
grows at….
Pension at
60, if interest
rates are….
Or tax free lump
sum (assumed
25%) and reduced
pension

£150 5% - £77,500 4% - £5,280 £19,300 cash, plus
pension of £3,960
       
  7% - £103,000 6% - £8,430 £25,700 cash, plus
pension of £6,320
       
  9% - £138,000 8% - £13,300 £34,600 cash, plus
pension of £9,980

 
Male aged 35, planning to retire at65
       
Monthly contributionPension pot if
his investment
grows at….
Pension at
65, if interest
rates are….
Or tax free lump
sum (assumed
25%) and reduced
pension

£150 5% - £105,000 4% - £8,230 £26,200 cash, plus
pension of £6,170
       
  7% - £149,000 6% - £13,700 £37,300 cash, plus
pension of £10,200
       
  9% - £216,000 8% - £22,800 £54,000 cash, plus
pension of £17,100

Separate projections for female customers are available from theNorwich Union press office. The figures shown above are onlyexamples and are not guaranteed - they are not minimum or maximumamounts. What customers will get back depends on how theirinvestment grows and on the tax treatment of the investment.

They could get back more or less than this.

All firms use the same rates of growth for illustrations buttheir charges vary. They also use the same rates to show how fundsmay be converted into pension income.

Inflation would reduce what they could buy in the future withthe amounts shown.

Their pension income will depend on how their investment growsand on interest rates at the time they retire.

Norwich Union is the UK’s largest insurer. It is theUK’s largest provider of life, pensions and investmentproducts and one of the leading IFA providers. IFAs provide around75% of the company’s long-term savings business.

Norwich Union has strategic alliances with over 20 buildingsocieties and other leading UK brand names including Tesco PersonalFinance Limited and The Royal Bank of Scotland Group.

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