One In Five Retirees Are Below The Poverty Line In The UK
A recent Prudential study revealed some shocking statistics regarding the financial status of older UK residents.
A particularly notable finding was that one of every five people retiring in Britain this year will fall under the income poverty line.
Fourteen percent of British retirees in 2013 will depend solely on the state pension, a paltry £110.15 per week.
These individuals have made no other pension arrangements and when they die, their financial troubles will pass along to their beneficiaries.
Shocking Study Findings
These sobering statistics are broken down by gender, revealing that eight percent of men and 23 percent of women will enter their retirement years dependent only upon the state pension. Though having a private pension can be beneficial, it does not guarantee an income above the poverty line.
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People with small private pensions may find themselves with income under £8,254 a year, the estimated poverty line.
Overestimating the amount received from the state can lead people to retire without sufficient pension coverage. When asked to estimate how much they would receive, study respondents reported a figure that was £600 per year more, on average, than their actual entitlement.
Approximately one of every ten people surveyed claimed to have no idea what the state pension would pay. Though retirees in London are not in an enviable position by any means, the Welsh are even worse off, with 25 percent of Welsh retirees falling below the poverty line.
According to retirement income experts, increasing living expenses have rendered the basic state pension insufficient for anyone who wants to live comfortably during retirement. Ideally, the state pension should be considered a portion of retirement income, not the sole source of funds during the retirement years. For many UK citizens, this advice comes too late.
Research from the pension consulting firm Hymans Robertson revealed that many people will be forced to work long past the state pension age to maintain their standards of living. To generate £25,000 in gross pension income each year, a 65-year-old male would require an approximately £500,000 pension pot.
This does not take the impact of inflation into account. Many people are finding it impossible to save enough money for retirement by age 65.
This past April, the Office of National Statistics stated that the pension fund required to purchase a £5,000 annual income during retirement had increased by 29 percent over the previous three years to an eye-popping £152,800.
Employers are eliminating final salary schemes, leaving many employees without enough money to afford retirement. These older generations are staying on, preventing younger jobseekers from securing employment.
Implications for Beneficiaries
As if this was not bad enough, the problems may trickle down to beneficiaries. Some retirees may turn to credit to maintain their lifestyles, taking out loans and accumulating other debts. If these individuals die in debt, beneficiaries must repay what is owed.
Left with an estate of little value, surviving family members will be forced to dip into their own savings. This situation could force some of them into bankruptcy.
A life insurance policy is one way to cover final expenses but with limited income, retirees may not be able to afford this benefit. Those who must continue working may actually be in a better financial position because not only will they continue to earn income, they may also be eligible for life insurance offered by their employers.
If these workers die with life policies in force, beneficiaries can use the payouts to help settle their estates.