Perceptions of income needs in retirement

"There are a large number of pensioners living ‘pay check to pay check’ when they could be experiencing a much better life. "

It provides many insights into the attitudes of those in retirement on low to moderate incomes and concludes that many on low incomes are happier with a slightly smaller income and a reserve for emergencies and treats.

Many who read this article may find it difficult to have empathy with those on low incomes. In the US they have an expression ‘living from pay check to pay check’. It’s not just those on the lowest of incomes who might describe themselves in this way due to indiscipline, this way of living can reach quite high up the income spectrum. For some people therefore they can improve their situation by sensible budgeting, however the lower the income, the more difficult it becomes to identify savings that can be made.

The Joseph Rowntree Foundation maintains that a couple with no children require an income of £13k pa to avoid poverty. It also estimates that 16% of pensioners are living in poverty. Other statistics that should be considered include the fact 47% of UK pensioners do not pay income tax, so have a taxable income of less than £11,850 a year. I often wonder how many of these have a partner to whom they could transfer some of their Personal Allowance under the married allowance rules?

What’s more, according to Age UK, 39% of those with a claim to Pension Credit do not claim it and 19% pensioners do not claim their housing benefit entitlement. This remember is in an environment where a large numbers of UK pensioners are on low incomes, and are living from ‘pay check to pay check’.

Imagine you are one of them, what will you do when a disaster strikes and your washing machine gives up the ghost? Or even worse your boiler comes to the end of its life? What do you do? Credit is not going to be readily available, or if it was possible to obtain, how would you meet the repayments? You are already struggling to survive from one pay day to the next.

This is the point of having a reserve fund. It removes worry and to the holder the insurance it may provide has a value far greater than its face value.

One of the most moving quotes in the DWP report is from a couple who say when they are feeling down they get a cheap train ticket to the seaside and enjoy an ice cream. As the Mastercard adverts say, ‘Priceless’.

When you read the report it becomes clear why many small pension pots are cashed in. To obtain the greatest value from their pension savings this should be done in such a way as to avoid income tax and unnecessary loss of means-tested benefits.

There are a large number of pensioners living ‘pay check to pay check’ when they could be experiencing a much better life. 70% of pensioners own their own home. They have a reserve, the equity in their home.

Many pensioners living ‘pay check to pay check’ will be frugal with their home heating. If the long-range forecasters are to believed we could be in for a very harsh winter. Accessing the equity in their house would enable them to experience a much warmer home this winter, again, priceless.

Accessing equity does not have to be through equity release. It could be through downsizing to a smaller, more efficient home. However the moving and transaction charges need to be taken into account.

If they want to stay in their current home, they could use equity release drawdown to mitigate the effects of a rapid loss of equity through the effects of the rolling-up of interest. For the people we are talking about £10k could last several years before they need to replenish their reserve. Obviously the impact on any benefits the individual is receiving must be considered but the opportunities are there – we just now need to signpost where these individuals can find the advice they need, to access the products that will help them do this. And that is a big obstacle we need to overcome.