Millions in Denial over their pension finances

Millions approaching retirement ‘in denial’

Your text here…Millions of people approaching retirement are being hit by a crippling combination of large mortgages and no savings. Those aged between 55 and 64, known as ‘pre-retirees’, have been unrealistic about their pensions and are living in a state of denial about their finances. Many never look at their pension statements, simply filing them away every year, hoping they will have enough to pay for a good retirement – which most of them will not.

Pension experts warn against the widely held approach of using your house as your pension because few people actually want to move out when they get to retirement age. In another blow to those approaching 65, research reveals that even pensioners who have saved have been hit by a 70% collapse in their retirement income in the past ten years.

A report by a leading insurance company found that one in four pre-retirees has a mortgage. In a fifth of those cases, it is more than £75,000. The findings destroy the widely held assumption that a mortgage is a 25-year loan which is paid off by your 55th birthday, or sooner.

Parents are remortgaging their home to give money to their children to help them on to the property ladder. Others use their house as a ‘cash machine’, taking out money to put into a business, fund a better lifestyle or pay off debt. The poll of more than 1,200 people warns that retirement is no longer the ‘golden years’, but ‘a worrying time of financial and social change’, with many in a financial mess. The study found that 40% of pre-retirees are not saving any money into the likes of a bank account or a tax-free Individual Savings Account.

They have average savings, excluding pensions, of only £8,600 – a sum which would almost disappear in the event of a common emergency, such as needing a new boiler or a car. In the past, a typical pre-retiree would have had no mortgage, more savings and would have retired by the age of 65.

Separate research highlighted the nightmare facing pensioners who have been saving all their lives – with little to show for it. The monthly income from their pension, known as an annuity, has collapsed by more than 70% over the past decade, according to financial information company Moneyfacts.

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The situation facing retirees today appears ever bleak. A 65-year-old saving £100 a month for 20 years into a personal pension was worth £103,914 in the year 2000 and his annuity would have paid out just under £9,000 a year. Ten years later, a man of the same age who had saved the same amount of money for the same amount of time would have a pot of just £40,749 and an annual income of £2,542.

To get the same income as the man who had retired a decade earlier, the man retiring today would have needed to save £355 a month – more than three times the amount. The figures are based on a man buying the most common type of annuity, which is not inflation-proofed and leaves no benefits to his wife if he dies first.

The reports make a mockery of the myth that older people are debt-free and enjoying themselves with extra cash to spend on holidays, eating out and other treats.

The research found there is ‘a growing disparity’ between the haves and have-nots, with some pre-retirees enjoying the good life – although they are in a minority. It found 18% have savings of more than £100,000 after a lifetime of hard work or good fortune after inheriting money from relatives, or both. Record numbers of elderly people are working, with this number set to climb. At present, 1.4m people over state pension age – 60 for women and 65 for men – have jobs. Last year, a record number of pensioners were plunged into insolvency, with the number of ‘penniless pensioners’ rising faster than any other age group – up 44%. In 2008, 4,816 pensioners were declared insolvent. Last year, the number ballooned to 6,952, and it is expected to reach 8,000 this year.

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