Are you aware of how much money you will have when you retire? Will it be comparable to the average retirement income in the UK? How does that compare to the income you presently have?
Avoid the trap of just looking at the numbers. Instead, consider the implications for purchasing power. You should not only be able to make ends meet but still have extra money after receiving an average monthly retirement income in the UK. Spending power and any necessary outgoings are more critical when it comes to income than raw numbers.
Read on to know all the nitty-gritty details of average retirement income in the UK.
What is the Average Retirement Income in the UK?
Leading pensions publication, Pensions Age, reports that in 2021–2022, the typical retirement income in the UK increased to GBP 349 per week (or yearly GBP 18148) after housing expenses and direct taxes were considered. This amounts to a weekly reduction of GBP 27 from the previous year.
After housing costs are deducted, the average weekly income for pensioners under 75 is GBP 389, while the average weekly income for those over 75 is GBP 322. The UK's Department for Work and Pensions increased the average weekly pension by around 11.8%, indicating that workplace pensions are a significant factor.
Regions also influence the average UK retirement income. In London, your retirement income is lower than the national average. However, you'll likely have more money if you're based in Scotland or the Northeast. Generally speaking, the disparity is caused by different living and housing expenses. In 2022, 71% of retirees derived their income from private pensions.
Although the share of income from private pensions has grown recently, investments, occupational pension plans, and state pension payments still account for a sizable amount of UK retirees' income.
What is the Difference Between Average Earnings and Average Retirement Income?
To put things into perspective regarding retirement planning and financial goals, your annual income from employment plays a crucial role in determining the average retirement income in the UK.
The Office for National Statistics (ONS) reports that the average weekly pay for a single individual working full-time in the last tax year was GBP 640. According to data released by Lloyds Banking Group, the average monthly expenditure on owning and renting a house is GBP 874 (about GBP 218 per week) for renting and GBP 759 (approximately GBP 189) for buying.
After deducting housing costs from the average weekly salary, you are left with GBP 451 if you are purchasing and GBP 422 if you are renting. Next are the expenses associated with everyday life, such as food, light, heating, vehicle and council tax, insurance, etc.
Furthermore, consider investing as much as possible for your retirement years because the average retirement income in the UK is unlikely to provide you with the kind of retirement lifestyle you want.
What is the Average Income for a Retired Couple?
The average weekly income for retired couples as of 2022 is GBP 515 because their overhead is lower when they share a home than when they live alone. Another contributing factor might be the likelihood of divorce or separation among those who are single at retirement, which could have a significant effect on their previous financial situation and retirement savings.
Individuals in committed, long-term relationships may be more capable of accumulating retirement savings and more driven to do so.
Estimating the Amount of Money You Will Require for Retirement
The Social Market Foundation estimates that individuals in the UK between the ages of 50 and 64 will, on average, fall 58% short of their lifetime savings and pension requirements to enjoy a decent retirement income.
However, as many salaried employees still view themselves as "just getting by," this does not always imply that such an income offers a comfortable or desired living level. What constitutes a "comfortable" average retirement income in the UK? In the end, it comes down to your retirement plans.
According to research by Pensions and Lifetime Savings Association (PLSA), a single person would require GBP 37,300. At the same time, a couple in the UK would need a combined yearly income of GBP 54,500 to have few or no financial concerns in retirement.
After looking at the average UK retirement income for both a single and married couple, it is evident that setting up one or more private pension plans will provide you with the necessary amount of money for a comfortable retirement, regardless of your marital status.
According to research, a person's yearly income of GBP 12,800 should be sufficient for a modest retirement. However, if this amount is lower, significant sacrifices may need to be made. A GBP 100,000 pension fund would provide an annual income of about GBP 4,000 to GBP 5,000 and a lump payment of GBP 25,000 in tax-free cash, so you can see how much you would need to save.
Although this may not seem like much, the total annual amount (including the tax-free lump payment) could be between GBP 14,600 and GBP 15,600 if you are also getting the full new state pension. These numbers show that you should strive for a pension pool of at least GBP 100,000, if not more.
Retirement at 55
Another pension reform was implemented in April 2015, enabling individuals to take tax-free withdrawals of up to 25% of their pension funds. This change caused many to pause and consider retiring at 55.
If you want to retire at age 55, you should be aware of the current average pension fund in the UK for this age group. According to the FCA, the average UK pension at age 55 is £61,897.
Even at 4% annual withdrawal, or little about GBP 2,500, you would have enough money to survive until you are about 79. Your retirement income would be limited to GBP 12,100 per year, with the current new state pension being a little over GBP 9,600 annually. If a couple doubles that amount, they only discuss a retirement income of GBP 24,200. That will barely be sufficient to maintain a modest lifestyle.
How Unicorn Accountants Can Help You?
It would help if you made cautious pension plans to ensure you end up with far more than the average retirement income in the UK to avoid falling into the retirement poverty trap. You can seek the support and guidance of Unicorn Accountants, a leading accounting firm in the UK, to create a comfortable retirement plan for your goals and expectations.