By Ilonka Oudenampsen
Eight out of ten pensioners expect the value of their pension to decline due to inflation, but have nonetheless not made the necessary provision to counter it, according to AXA Wealth’s Cost of Living in Retirement Report.
Written in conjunction with Dr Liam Foster of the University of Sheffield’s Department of Sociological Studies, the report found that 69 per cent retired sooner than expected, mostly due to ill health, redundancy or offers of early retirement.
If retirement is being enforced or is unavoidable, individuals are likely to be less prepared, and 58 per cent of respondents admitted to having not sought any professional financial advice in advance. Moreover, 45 per cent have never calculated the pension benefits they would receive in retirement and of those that did seek professional help, 14 per cent waited until just before they retired.
In order to feel ‘comfortable’ in retirement, 40 per cent have said they would need more money. Due to lack of professional advice and forward planning, just over 40 per cent have been forced to cut back on their lifestyle in retirement, ranging from luxuries such as holidays through to essentials like food and heating. Furthermore, a third said they are having trouble making ends meet and are feeling anxious about money.
For those who said they would need more money, 60 per cent said they needed £4,000 or more a year. To buy such an amount through an annuity, significant additional funds would be needed, particularly if it would include inflation protection or a spouse’s pension.
Head of guaranteed distribution for AXA in the UK Simon Smallcombe said: “It’s very concerning that despite people knowing their purchasing power will reduce, they aren’t doing anything about it. Seeking professional financial advice is the only way to ensure you have plans in place that are flexible enough to see you through what can be a long retirement journey.
“Retirement planning should be an ongoing process that can adapt to changing circumstances using a combination of products; perhaps with guaranteed products forming a core income, supplemented by capped or flexible drawdown as well as income from other tax wrappers as required. Advice is not just something you seek a few months before your last day at work.”