There is a wide gap between people’s expectations of pension payouts and the reality of retirement income according to new research from Norwich Union.
Almost half of the survey’s respondents (47.3 per cent) believe they will requirement an income of more than £25,000 a year when they retire. Unfortunately, this is approximately 14 times the average level of annuity according to the company’s research.
Head of annuities marketing at Norwich Union, Scott Brown, said: "Mention pensions or annuities and most people just seem to switch off. But when you ask them what income they will need in retirement, people have some very high aspirations.”
The company found that the average total pension value used to purchase an annuity in 2006 totalled £26,364. This gave an actual retirement income of just £1,843 per year and £154 per month.
More disturbingly, Norwich Union discovered that people were in the dark about how pensions actually work.
On retirement, a pension is used to buy an income in retirement, most often in the form of an annuity (a fixed amount of money paid every year, usually until the receiver’s death). However, the company found that that almost one in five people who have a personal pension do not know what an annuity is.
A further 60 per cent were at least 40 years old before they learned they had to buy an annuity to fund their retirement.
Mr Brown believes there is a high level of naivety when it comes to pensions. He said: “People are focusing on retirement much later in life than they should be, particularly as life expectancy is now longer and people will therefore spend almost as long in retirement as they will in work.”
“The message about pensions appears to be falling on deaf ears: people should start saving for retirement as soon as possible,” he added.
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