Article date: 19 May 2010
Spending patterns and fixed-income make this group vulnerable says Aviva.
Aviva’s quarterly Real Retirement Report published today reveals that as the dust from the election settles, the UK’s over 55s are anxious about changes to the tax regime and the rising cost of living. This is because their spending, income and assets leave them particularly vulnerable to any change.
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 issue also takes a detailed look at working in retirement which is outlined in a separate news release.
Worried about the rising cost of living and taxation:
Just under two thirds (64%) of over 55s are worried about an increase in taxes over the next five years. This compares to just 18% who are concerned about the rising cost of living over the same period. The long-term retired (75 and over: 61%) are the least concerned about taxes, while the newly retired (65 – 74: 68%) are the most worried.
Somewhat surprisingly, the over 55s find taxation changes far more worrying than health issues such as death of their partners (35%), financing care fees (27%) or serious illness (6%).
While over the long-term (five years) tax changes are this group’s primary concern, over the next six months this group is most concerned about the rising cost of living. Those most likely to earn under £750 per month (75 and over) are the most concerned (70%). However, those in Social Housing who are likely to be on a fixed income are the most worried of all (72%).
Once people stop working, they often find themselves struggling to survive on a relatively fixed income. Aviva is committed to helping all three age groups make the most of their income in retirement and has launched a series of adverts as well as a new retirement income calculator which will help people shop around for an annuity to make the most of their pension savings.
Vulnerable to taxation changes:
The over 55 age group is particularly vulnerable to taxation changes. This is because they generally have a fixed income, some have significant assets and their spending patterns mean that any sudden changes would affect them acutely.
People in this age group have typically paid off their mortgage (62% on average rising to 76% for those 75 and over) and now spend the majority of their income on food, fuel and light, entertainment and motoring. While only motoring (+17%) has seen double digit inflation increases in the last 12 months and the majority of food is Vat exempt, any sudden increases to these core costs - such as an increase in VAT - would particularly hurt this age group.
In addition, this age group has average mortgage equity of £225,224 and 14% of over 55s have properties worth more than £325,000 (2010/2011 – IHT Barrier). Not only does this make them particularly vulnerable to any freeze of the IHT barrier, but also raises questions about how they might be financially penalised should they need long-term care. Finally, 10% of this age group own a second home and they have mean savings of £13,892, so any sudden changes to Capital Gains Tax bands are also likely to hit them hard.
Over the period tracked, the over 55s saw their income fall by 4% from £1,284 (February 2010) to £1,239 (May 2010). This household income is 31% less than the average UK monthly household income (£1,855). Pre-retirees saw the most significant quarter–on-quarter fall as their income fell by 6% from £1,433 to £1,352. This drop is likely to be due to a combination of factors including economic circumstances increasing the cases of early retirement, the tougher job market and the low income available from savings.
As incomes fell, the number of over 55s saving nothing increased slightly from 39% (February 2010) to 41% (May 2010) – indicating perhaps that rather than slash other expenditure, some over 55s have given up on saving altogether.
Clive Bolton, at-retirement director for Aviva Life, comments: “With the election over and the Government taking a serious look at the UK’s income and expenditure, it is interesting to see that 64% of over 55s are more afraid of tax increases than serious illness or the death of their partner. This age group is particularly exposed to any sudden Vat increases or changes to fuel charges and this report really shows how vulnerable they feel to any sudden increases.
“Many people in this age group are concerned about the rising cost of living due to their relatively fixed income. Therefore, it is vital that they make the most of their pension pots.
“At Aviva we want to help individuals to maximise their retirement income by making best use of their assets. This is why we have just launched a series of TV adverts, as well as a new retirement calculator, which will help people understand the various annuity options, so they can enjoy the best possible lifestyle in their later years.”
Download The Aviva Real Retirement Report - Issue Two (PDF 1.38MB) (Link no longer active)
Press office contacts:
Sarah Poulter - 01904 452828 / 07800 691569
Louise Soulsby - 01904 452617 / 07800 699526
The Wriglesworth Consultancy:
Lee Blackwell /Karen Butcher
Telephone: 020 7427 1400
All 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 track 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 Annuities being the choice for Q1 2010. A press release highlighting how ignorance causes the UK’s over 55s to throw away millions in annuity income can be found at www.aviva.com/media/news/5870/.
* = Technical Notes:
- A median is described as the numeric value separating the higher half of a sample, a population, or a probability distribution, from the lower half. Thus for this report, the median is the person who is the utter middle of a sample.
- An average is a single value that is meant to typify a list of values. This is derived by adding all the values on a list together and then dividing by the number of items on said list. This can be skewed by particularly high or low values.
- Aviva is the world’s fifth 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.
- Aviva’s life and pensions business in the UK has a total market share of 10.3%** and a leading position in its key markets of savings, protection and annuities.
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