In 2011, the Treasury announced the minimum income requirement for those who wanted to consider flexible drawdown. The Treasury set an income of £20,000 a year as the safety net with the potential ability to spend everything above this amount. Its figures suggest that those looking to retire would need at least £20,000 a year, £5600 more than the minimum standard of living level detailed by the Joseph Rowntree Association the year before. Recent research suggests that pensioners in 2012 will retire on something like £15,500 a year, an amount closer to the 2010 figure and an amount that is falling.
If the amount people can expect to retire on is falling, what does this mean in practice? The spending patterns for the retired have traditionally been suggested to be U-shaped – with an initial extra expenditure on retirement then levelling out and with an increase in later life when additional costs such as long-term care become a factor.
In 2011, the department for work and pensions presented a detailed piece of research entitled Perceptions of Income Requirements in Retirement, which presented a detailed study into what people thought they needed in retirement and how they would, or more likely would not, achieve this. In short, there were no definite conclusions and, as you would expect, views on the income requirement were the result of a whole range of factors including age, social background and perception of the world around you.
The report found that before retirement people could generally be put into three categories: planners; non-planners and opportunists. The report also found that people generally behaved according to their category and this was similar to my experiences when retirement counselling.
A variation of the phrase “comfortable lifestyle” emerged throughout the research, but this meant different things to different people and how it was reflected individually was often due to outside influences, such as other people’s experiences, media images and their own experiences.
The research also considered the rationales for people retiring. The decision to stop earning and to have to rely on assets or entitlements is a decision not to be taken lightly. While continuing to work there might be the opportunity to build up more assets to be spread over a consequently shorter period of retirement. When employment stops it really is a case of making do with accrued assets with perhaps the odd inheritance to assist.
Interestingly, most people interviewed in the research process felt they had been “pushed” into taking retirement rather than having more positive reasons for retirement. Some of the push factors make interesting reading: a default retirement age; an expectation that employees of a certain age would retire; health reasons; redundancy and capability.
