Article date: 8 September 2010
Aviva research shows that a quarter of over 55s are being forced to dip into income-generating savings to pay for unexpected expenses.
Aviva’s quarterly Real Retirement Report published today shows that unexpected expenses are forcing over 55s to dip into savings that would otherwise have been used for retirement income. With nine out of 10 (92%) over 55s having faced unexpected expenses in the last five years, it is clear that while people focus on saving to maintain their lifestyle in retirement, "rainy day" cash is also very important.
All the following findings are revealed in today’s quarterly report from Aviva which reviews the finances of the three ages of retirement – pre-retirees (55-64); retiring (65-74) and long-term retired (75 and over). This report also takes a detailed look at financing retirement which is outlined in a separate news release.
Worried about rising cost of living
Over the next five years, people over 55 fear the rising cost of living more than anything else (64%). This is a significant increase from the last report (18% in May 2010) and underlines how the fallout from the recent economic turmoil and the current environment of Government cost savings have impacted on this age group’s hopes and fears.
With the rising cost of living being this age group’s primary concern it is no surprise that just under two thirds (61%) of over 55s are also worried about how they will pay for unexpected expenses of £500 or more. The report shows that despite the large number of over 55s having had to pay out for unexpected expenses, over half (55%) have not made any provision for these unplanned outlays. Indeed, only 6% have made any provision for long term care, 9% for private medical care and 23% for the upkeep of their homes.
Financing unexpected expenses
Over 55s funded their unexpected expenses by dipping into emergency savings funds (45%) and by using income-generating savings (25%). In addition, 17% cut back in other areas, 11% took out a credit card or loan and 6% sold assets.
The long-term retired - who have been economically inactive for an average of 12 years - were most likely to dip into their income-generating savings (27%) and least likely to use emergency savings (38%). This might suggest some over 75s have used up their "rainy day" savings in early retirement, and are now forced to sacrifice potential future income to pay for immediate expenses.
Pensioner income remains steady
While the average pensioner saw their monthly income remain steady at £1,313, there are extremes of rich and poor. While the majority (59%) of households have a monthly income of between £751 and £2,500 per month, the UK is also home to some relatively well-off over 55s (21% on more than £2,501) and other over 55s who are struggling (21% on less than £750).
The largest single source of income (24%) for the over 55 age group is the state pension. However, while the 65-74s (30%) and over 75s (35%) are heavily reliant on this form of Government funding, the more economically active 55-64s rely on their own earned income (24%). The pre-retirees (55-64) are also significantly more reliant on benefits (10%) than the older age groups (4% and 7%) – indicating higher levels of involuntary unemployment and redundancy.
The number of people reliant on income from rental property (September 2010 – 1%) has fallen over the last quarter (May 2010 – 2%) – potentially as a result of the current speculation around Capital Gains Tax and its implications for residential property. However, with 66% of people of all ages saying that they believe that property is a better investment for the future than a pension, we may see a growing reliance on this income source over the next few years.
Low interest rate environment impacts savers
12% of over 55s’ income comes from a pot of savings and investments worth on average £16,296. Therefore, the fact that the Bank of England (BOE) base rate continues to remain at a historic low – with many pundits predicting no movements in the short term – is a real concern for many people.
Clive Bolton, "at retirement" director for Aviva, comments: “Over the last thirty years, people have generally seen retirement as an opportunity to relax after a long working life and enjoy the fruits of their labour. However, when you consider that for a savings pot of £16,296, you would get an annual gross income of just £117 from the standard branch based notice account, you can understand why many over 55s are very worried about their finances. In fact these figures reveal that one in five over 55 households is struggling to get by on almost a third of the national average income.
“Retirement income is also relatively fixed which is why any rise in the cost of living is particularly concerning for this age group. This coupled with the fact that people often have to pay for unexpected expenses for which they have made no provision highlights how vitally important it is to build up retirement savings over your entire life.
“The Aviva research shows that as longevity increases individuals will spend longer in retirement. As such we want to help them plan their retirement finances so that they can enjoy the best possible lifestyle in their later years. At Aviva we offer a range of saving and investment solutions, as well as access to financial planning tools, to help individuals save for both planned and unplanned future expenses.”
Download a full copy of Aviva’s Real Retirement Report (PDF 0.90MB).
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All longevity data was sourced from the office of national statistics and the remaining data was sourced from the Aviva Real Retirement Index. This report is a definitive look at the personal finances of the UK’s over 55 population. Not only does it look at personal wealth, income sources and expenditure patterns but also tracks how these change in the "three ages" of retirement.
In addition to the regular data, each quarter a spotlight will be shone onto a different relevant topic with the longevity equation being the choice for September 2010. This is covered in a separate news release which can be found at: www.aviva.com/media/news/item/uk-work-vs-retirement-equation-shows-huge-imbalance-7920/
Download a full copy of Aviva’s Real Retirement Report (PDF 0.90MB).
Notes to editors:
- Aviva is the world’s sixth largest* insurance group, serving 53 million customers across Europe, North America and Asia Pacific
- Aviva's main business activities are long-term savings, fund management and general insurance, with worldwide total sales of £45.1 billion and funds under management of £379 billion at 31 December 2009
- We are the largest insurance services provider in the UK and one of the leading providers of life and pensions products in Europe
- The Aviva media centre at www.aviva.com/media/ includes images, company and product information and a news release archive
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* based on gross worldwide premiums at 31 December 2009