The AvivaReal Retirement ReportSummer - July 2012
Foreword                              Clive Bolton,                              ‘at-retirement’ director at AvivaWelcome ...
The three ages of retirementThe Aviva Real Retirement Report considers retirement as threestages to reflect the fact that ...
The gateway to retirementl   	 4% of businesses offer employees no tailored retirement     6     supportl   	 8% of employ...
Investment without support:Over this 16-year period, it is likely that in the name of staff retention and motivation, empl...
Advice welcomed:The vast majority of those who received support welcomed it with 70% saying that they found it useful. Alm...
Economic overviewl     	 ver-55’s RPI (retail price index) annual inflation continued to fall       O       from 5.41% (Q4...
Incomel   	Over-55s monthly income grows by £122 since February 2010l   	However, fewer over-65s derive an income from wor...
Income sources:The top source of income for the over-55s is the state pension (62%) followed by a work pension (39%) and p...
Expenditurel   	More is spent on debt repayment (15%) than food (14%).l   	Luxury spending falls as essential spending hol...
“Many of today’s over-55s remember far more austere times than people who arein their twenties or thirties. Therefore, whi...
Assetsl 	Typical over-55s savings pot rose to £15,756l 	Almost one in five over-55s has a mortgage that they need to pay o...
There are many reasons behind this including unemployment for those aged over-55 as well as those who are about to enterth...
Equity is an option:For the 12% of people between the ages of 65-74 who still have a mortgage (£64,024), their finances ar...
Borrowingl   	Unsecured debt falls to £22,401 from £24,827 (Q1 2012)l   	Almost a quarter (23%) of over-75s have a credit ...
Over-55 financial fears indexl   	Fears fall as over-55s become immune to bad newsl   	 ew tracking categories find that 4...
Long-term overview (Five years):Rising cost of living (71% - Q2 2012) and unexpected expenses (31%) are also key concerns ...
Overview of the over-55s financesover the last 28 monthsIncome:Incomes have risen from £1,239 (Q1 2010) to £1,361 (Q2 2012...
House prices:Despite the UK housing market experiencing a long period of negative or no growth, the over-55s have seen the...
Regionaloverview                     Average house price        Average mortgage             Own house outright   Number o...
So what does this tell us?This edition of the Real Retirement Report takes another look at over-55s finances and focuses a...
MethodologyThe Real Retirement Report was designed and produced by Wriglesworth Research. As part of this more than 13,610...
Aviva Real Retirement Report 23
RETIREPORT_V2_12_106000473 06/2012 © Aviva plc
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[ARCHIVE] Aviva Real Retirement Report Summer 2012

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The focus for the Summer 2012 Real Retirement Report is the transition between employment and retirement. What role do employers play? What role do employees want them to play? What type of help is expected?

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[ARCHIVE] Aviva Real Retirement Report Summer 2012

  1. 1. The AvivaReal Retirement ReportSummer - July 2012
  2. 2. Foreword Clive Bolton, ‘at-retirement’ director at AvivaWelcome to Aviva’s Summer Real Retirement Report. We have been tracking the concerns and finances of the threedistinctive ages of retirement – pre-retiree (aged 55-64), retiring (65-74) and long-term retired (over 75) for over twoyears now and have found a number of trends emerging.Each quarter we look at a particular area which has a specific impact on their finances or general sense of wellbeing.The focus for the Summer 2012 Real Retirement Report is the transition between employment and retirement. Whatrole do employers play? What role do employees want them to play? What type of help is expected? All of thesequestions and more are answered on pg 4.While almost two-thirds (64%) of employers offer no tailored support to their employees who are retiring, over two-thirds (68%) of employees would appreciate some help. Financial workshops (35%), retirement literature (35%) and alist of recommended advisers (21%) were flagged as of particular interest to the over-55s.Of those who did receive some support, 70% said it was useful and 23% said it played an important role in theirretirement planning – so efforts made by employers do not go unnoticed.Overall, the UK’s over-55s are slightly better off this quarter than they were at the start of the year as they sawincomes rise to £1,361 from £1,303 (Q1 2012).A key theme that we have seen developing over the course of 2012 is the move towards the over-55s taking greatercare of their finances. Typical savings pots rose to £15,756 and unsecured debts fell to £22,401 as over-55s cut backon non-essential spending.However, that said, we have seen an increase in the number of over-55s who do not save on a monthly basis to 42%from 40% (Q1 2012) and the amount saved has also fallen to £31.05 from £39.97 (Q1 2012).This highlights the fact that while the over-55s generally appear to be working to improve their finances, they areunable to do everything at once so if they are repaying debt, they are often not saving.In the Spring 2012 edition of the Real Retirement Report, we introduced the ‘Over-55s Financial Fears Index’ and thetracking for this quarter reveals that this age group is less worried about the future than last quarter – potentially dueto the fact that they are taking less notice of bad news due to prolonged exposure.We also added two new categories to the worries tracked – rising price of petrol (43%) and concerns about supportingtheir family financially (6%). It will be interesting to follow how this changes over time, but the fact that almost half ofover-55s are worried about petrol costs shows the value they put on having their own transport and independence.All figures quoted in the report refer to Q2 2012 unless otherwise stated. Aviva Real Retirement Report 2
  3. 3. The three ages of retirementThe Aviva Real Retirement Report considers retirement as threestages to reflect the fact that ‘retirement’ changes as people getolder, rather than simply being a single event.l Pre-retirees – (55 to 64 years old) are on the countdown to retirement … – But 25% still have an outstanding mortgage (£64,583 – average outstanding balance) – Have the smallest savings pots (£9,373) and are most likely to save nothing (45%) each month – most likely to appreciate a list of recommended IFAs to approach for financial advice in the run up Are to retirement (23%)l Retiring – (65 to 74 years old) have just passed the age at which people often retire … – most likely (33%) to be receiving an income from their savings and investments. They also boast Are the largest savings pots (£26,085) – However, 12% still have a mortgage on their property and those with unsecured debt typically owe £24,707 – After working for their last company for typically 16 years, they are most likely to say that they found assistance from their employers useful around retirement (79%)l Long-term retired – (75 years and older) most are 10 years or more into retirement … – 80% own their own home but 5% still have a mortgage (£37,500 – average outstanding balance) – Have the lowest unsecured debts (£11,811) of all age groups, but 23% have credit card debt they do not repay in full each month – the most likely to think that employers have a role to pay in retirement planning (75%) ArePopulation trends 13 12 11% of population 10 55-64 65-74 9 75+ 8 7 6 5 1986 1996 2003 2005 2007 2016 2026 Years Aviva Real Retirement Report 3
  4. 4. The gateway to retirementl 4% of businesses offer employees no tailored retirement 6 supportl 8% of employees want employers to help them as they 6 approach retirementl inancial workshops (35%), retirement literature (35%) and a list F of recommended financial advisers (21%) are the top requestsl ver-55s have typically been with their last employer for 16 years ORecent figures show that older people still in employment (i.e. those older than the state pension age) has increased from 7.6% in1993 to 12% in 2011. There are various reasons for this, such as the end to the default retirement age, better health, and of coursefinancial pressures.‘Part-tirement’:Around 32% of older people who are still employed are working part-time, compared to 13% of those below the state pensionage. And older workers are twice as likely to be working part-time (66%) than full-time (34%). This strengthens the argumentthat while many older people are looking to cut back on their working hours to explore other interests they are not ready to stopworking altogether.Employee loyalty:While many people change jobs relatively frequently at the start of their careers, they tend to spend longer with those employersthat they work for immediately prior to retirement – if they don’t change careers all together or set up their own business.Today’s retired over-55s had typically been with their last employer for 16 years, equating to over a third of their working lives ifthey started work when they were 20 and retired at 65. Men (16 years) are typically with their final employer longer than women(14 years), but this is likely to be due to the historic difference in state retirement ages.However, it is interesting to note that over-75s (17 years) had been with their last employer longer than 55-64s (14 years) and65-74s (16 years). This may simply be because they have worked longer than other age groups or it may be evidence of the movetowards people having numerous different jobs during their working lives. Aviva Real Retirement Report 4
  5. 5. Investment without support:Over this 16-year period, it is likely that in the name of staff retention and motivation, employers have, in addition to salary,provided substantial financial support and benefits to their employees.In fact, 46% of employees over-55 have a workplace pension scheme which they contribute 6.16% of their income to and theiremployer contributes 6.70% to. In addition to pensions, 17% of employees over-55s receive an annual bonus, 16% enjoy asubsidised canteen, 14% have private medical insurance and 5% have access to workplace savings.However, despite having invested heavily into their employees, many organisations do not feel it is their responsibility to help theirstaff make the most of their retirement. Almost two-thirds (64%) of businesses provide no additional or tailored support for thoseemployees who are approaching retirement.For the 36% who do, the support seems to focus on allowing them to remain at work longer if they so choose. One in tencompanies offer people the ability to work part-time or flexi-time as they approach retirement and 9% look at extending theirworking lives if this is what the employee would like to do.Other types of support offered were workshops or seminars on retirement (12%), financial advice (11%) and written literature onfinancial issues surrounding retirement (9%).What forms of support did your final employer provide when approaching retirement? 12% 9% 10% Ability to reduce working Workshops/Seminars on Benefit statements hours or work flexi-time retirement finances 9% 7% 9% 5% A dedicated memberOffer to extend my Counselling / advice Written literature on of staff to talk to working life on how to adjust to the financial issues about these issues retirement surrounding retirement “While in this tough economic environment, employers have made great strides in supporting their employees with a range of financial benefits in the run up to retirement. However, employers now need to consider how they can increase staff engagement and productivity by helping them to feel secure about their later life finances and use their retirement funds wisely.” Clive Bolton, ‘at-retirement’ director for Aviva Aviva Real Retirement Report 5
  6. 6. Advice welcomed:The vast majority of those who received support welcomed it with 70% saying that they found it useful. Almost a quarter (23%)said it played an important role along with other elements, 16% said it was the most important part of their retirement planningand a worrying 4% said it was the only help they received.Men (74%) were more likely to find this type of support useful than women (66%), but more women (5% vs. 3% of men) said itwas the only help they received.However, while over-55s generally didn’t receive support from their employers when approaching retirement, 68% (Q2 2012) firmlybelieve that this should happen.Over a third (35%) would like workshops on retirement finances, 35% would like written literature on retirement finances, 27%felt a dedicated member of staff to discuss issues would be a good idea, and 21% wanted their employer to provide a list ofrecommended independent financial advisers.Unaware of the options:A review of the internet reveals that the majority of pension providers and retirement specialists – especially those who offerworkplace pensions – actively work to engage members in the schemes and ensure that they receive the right level of guidance.Therefore, the issue may not be lack of information but ratherlack of guidance as to how to access it.Hindsight is 20:20:It is interesting to note that different age groups have differentideas of what type of support employers should provide.This is perhaps due to not only the older generations deeperunderstanding of the practicalities of retirement but also theincreasing complexity of peoples retirement finances.Over-75s are more likely to feel that employers should offerretirement workshops (39%) than 55-64s (32%). Whereas55-64s (23%) are more likely to believe a list of approvedintermediaries will be more useful than over-75s (16%). Over-75s (25%) are also more likely to feel that an employer doesnot have a role to play in a person’s retirement planning 55-64s(31%) – potentially as they were more likely to have had accessto generous defined-benefit pension schemes.Post-retirement engagement:When people retired thirty or forty years ago, along with thepocket-watch often came membership of a former employeesclub or perhaps at the very least, an invitation to the Christmasparty. However, life has changed in more recent times and 73%of today’s over-55s had no further formal contact with their lastemployer.For those who did, 10% enjoyed membership of a formeremployees club, 6% received regular correspondence onfinancial matters and 3% attended informal meetings such ascoffee mornings. Aviva Real Retirement Report 6
  7. 7. Economic overviewl ver-55’s RPI (retail price index) annual inflation continued to fall O from 5.41% (Q4 – Dec 2011) to 4.05% (March 2012 – Q1 2012) to 3.21% (May – Q2 2012)Over-55 RPI vs. all RPI 6% 5% 4%% change RPI over 55s 3% RPI all 2% 1% Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 MonthThis is higher than the RPI annual inflation for the UK population as a whole (3.10%) and highlights the differences in over-55’sspending patterns and pressures. For example, they spend less on housing (£291 – May 2012) than families (£519) so are in less ofa position to benefit from low inflation levels (1.73%) on this type of expenditure. And while food inflation has fallen from 4.61%to 3.45% between December and May, over-55s spend a higher proportion of their income on it compared to families (11% vs18% – May 2012) and benefit less.However, an overall drop in the RPI remains good news for this group, especially those who have already retired and are on afixed income.Other contributing factors to the lower RPI are the minor decreases in the cost of clothing, footwear and furniture recorded sincethe start of the year.One of the main drivers behind the fall in the RPI between December 2011 (5.4%) and March 2012 (4.05%) was that the VATincrease, which occurred in January 2011, has now ‘dropped out’ of the annual figures so while inflation is down, this does notmean costs are actually falling.Age group inflation:The three groups of over-55s (pre-retirees, retiring and long-term retired) each experienced inflation changes slightly differentlydepending on their typical expenditure. Over-75s (3.21%) had the highest RPI followed by 55-64s (2.98%) and 65-74s (2.96%). Aviva Real Retirement Report 7
  8. 8. Incomel Over-55s monthly income grows by £122 since February 2010l However, fewer over-65s derive an income from work and the number of benefit claimants begins to riseTo provide a true picture of the over-55s finances, the Real Retirement Report has tracked not only the impact of inflation but alsothe level of income, sources of income and how this income is spent since the report was first launched in February 2010.Level of income:The median income of the over-55s rose by 4% to £1,361 from £1,303 (Q1 2012) and £1,285 (Q4 2011).While obviously an increase is good news, it is interesting to note that since February 2010, over-55s income (£1,239) has onlyincreased £122 per month – not a significant amount when you consider that the amount spent on food alone has increased by£17.48. All age groups have seen an increase in their average income over the last quarter and over the last 28-months.Over-55s income tracking All 55 – 64s 65 – 74s Over 75s Feb 2010 £1,239 £1,305 £1,241 £1,134 March 2012 £1,303 £1,327 £1,318 £1,221 June 2012 £1,361 £1,359 £1,390 £1,318 28-month change + £122 + £54 +£149 +£184Over-75s appear to have seen the largest income increase but this is likely to be due to the fact that they have more generous agerelated personal tax allowances and are also more likely to receive income from an employer pension (47%).Income bands:The percentage of over-55s who survive on less than £500 per month (10%) is at its lowest level since February 2010 and thepercentage of over-55s who survive on less than £750 (19%) is also at an historic low.Percentage of over-55s who survive on less than £500 per month 12% 11% 10% 2010 Summer 2011 Summer 2012 SummerThis supports the theory that the over-55s are gradually increasing their income due to factors such as the state pension,which has benefited from index linked inflation. Aviva Real Retirement Report 8
  9. 9. Income sources:The top source of income for the over-55s is the state pension (62%) followed by a work pension (39%) and personal pension (34%).Wages/earned income also provides an income for almost a third of over-55s (32%). Just over half (51%) of 55-64s are still working whichdrops to 16% of 65-74s and 7% of over-75s.Percentage of over-55s who earn an income from wages All 55 – 64s 65 – 74s Over 75s Feb 2010 29% 41% 18% 9% June 2012 32% 51% 16% 7%It is interesting to note that over the last 28-months, while the number of 55-64s has increased, the number of people workingamongst the older age groups has actually dropped.This seems to indicate that while the abolition of the default retirement age has left the door open for people to continue theirworking lives for longer, the recession and potential ill health has meant that fewer people were able to extend their careers intolater life. “While many over-55s may wish to work beyond the traditional retirement age – either due to financial or social reasons – it appears that the current economic situation does not always make this possible. This will be particularly bad news for those people who have not made sufficient provision for later life and were counting on those extra few years to boost their inadequate savings.” Clive Bolton, ‘at-retirement director’ for AvivaIncome from assets:Over a quarter (27%) of over-55s rely on savings/investments for a percentage of their income. This has remained relatively stableover the last few years - Q2 2010 (30%) and Q2 2011 (26%) – which suggests that while some people are chipping away at theircapital, others are deriving an income from the interest on their savings or the dividends from their share investments.Top monthly income sources for over 55s Employer pension 39% £ £ Investments/savings 27% £ Personal pension 34% State pension 62% Wages/other earned income 32% Benefits inc. unemployment 17% Spouses pension 22%Guaranteed investments, allowing protected stock market exposure, are becoming increasingly popular in the current uncertainmarket and offer a managed risk approach so many over-55s are also likely to choose these as a home for their savings. On theother end of the scale, the number of over-55s who derive an income from benefits has risen slightly since the start of the year from15% (Q1 2012) to 17% (Q2 2012).While this is slightly up on the same time last year (16% - Q2 2011), it is significantly down on the year before (22% - Q2 2010).This seems to suggest that following a clamp-down on benefit claimants by the Government, more over-55s are now starting toclaim state assistance – potentially due to the current economic climate.Other income sources for the over-55s are spouse’s pension (22%) and rental income (4%). Aviva Real Retirement Report 9
  10. 10. Expenditurel More is spent on debt repayment (15%) than food (14%).l Luxury spending falls as essential spending holds steadyWhile the over-55s have different spending patterns than other groups within the UK, they still spend the majority of their incomeon very familiar costs. The biggest expenses for the over-55s are housing (22%), debt repayment (15%) and food (14%).Average over-55s expenditure - top expenses Entertainment Motoring Fuel and Light Food Debt repayment Housing (mortgage or rent) 0% 5% 10% 15% 20% 25%It is shocking to see that over-55s spend a higher percentage of their income on unsecured debt repayment than food. However,just under a quarter (22%) of over-55s repay borrowing on a monthly basis so while this is certainly true for some households,others have less of a burden to bear.While inflation is relatively low on housing (1.63%), which is the biggest expenditure for over-55s, some other monthly expenseshave seen substantial inflation – fuel and light (+10.96%) and clothing and footwear (+9.05%). However, these are the exception tothe rule and the majority of items in the over-55’s shopping basket have experienced inflation below 4%.Although inflation has fallen, the over-55s appear to be economising on ‘non-essential’ spending to increase spending on essentialsand in doing so increase the amount they are able to save for the future. Percentage of Over-55s Who Spend on Common Items Q2 2011 Q2 2012 Food 98% 97% Motoring 83% 83% Postage telephone and Internet 95% 96% Alcohol 77% 69% Clothing and footwear 90% 85% Furniture, appliances and pet care 66% 50% Fares and other travel costs 65% 54%While spending on food, motoring and postage, telephone and internet have remained relatively constant, spending on items suchas alcohol and furniture have fallen significantly.This reduction in alcohol spend may be as a result of changing spending habits with people looking to economise by seekingcheaper brands. However, it could also be a result of people consciously changing their lifestyle habits to economise. The NHShas reported a fall in alcohol-related admissions in the last 12 months among teenagers and young adults, so the decline in theconsumption of alcohol could also be a trend for the over-55s. Aviva Real Retirement Report 10
  11. 11. “Many of today’s over-55s remember far more austere times than people who arein their twenties or thirties. Therefore, while they are the baby-boom generationwho many perceive as having substantial financial advantages, they also know thevalue of reducing borrowing and cutting spending.”Clive Bolton, ‘at retirement’ director for Aviva Aviva Real Retirement Report 11
  12. 12. Assetsl Typical over-55s savings pot rose to £15,756l Almost one in five over-55s has a mortgage that they need to pay offl The typical value of the over-55s home is now £236,474Over the last quarter, over-55’s median savings have risen from £14,198 (Q1 2012) to £15,756 (Q2 2012). While this is obviouslygood news and shows that the trend towards boosting savings is common across all age groups, when you dig deeper into thestatistics, you find a more interesting trend.While you might expect the pre-retirees (55-64) to have bigger savings pots than the retiring, this is not the case. In fact, we see ajump in savings pots at retirement as people appear to use the tax-free lump sum from their annuity to boost their savings, followedby a gradual decline in assets as people age and need to make use of these savings.Typical savings pots of the over-55s All over 55s 55-64 65-74 Over 75 Q2 2010 £13,893 £11,176 £15,595 £22,500 Q2 2011 £11,907 £7,793 £17,499 £15,624 Q2 2012 £15,756 £9,373 £26,085 £12,998That said, savings pots for the pre-retirees have increased since the Real Retirement Report was launched in January 2010 so peopleare obviously looking to save if they are able.However, the long-term retired have actually seen their savings fall from £18,748 (Q1 2010) to £12,998 (Q2 2012). This is likelyto be due to people using their capital to boost their income in a low interest rate environment, people living longer and peopleentering this age group with lower savings than their predecessors.The number of over-55s with no savings (17% - Q2 2012) remained steady over the quarter and has only increased by 1 percentagepoint from Q1 2010 (16% - Q1 2010) when the report was launched. This seems to indicate that there is a ‘hard-core’ group ofpeople who are unwilling or unable to save.Monthly savings habit:The median amount that people are saving each month is £31.05 which is down from £39.97 (Q1 2012). In addition, the number of peoplewho are not saving anything each month has also seen a negative change and rose from 40% (Q1 2012) to 42% (Q2 2012).Typical monthly savings amounts for all over 55s £39.97 £29 £33 £31.05 2010 Summer 2011 Summer 2012 Spring 2012 SummerThis is not the highest level recorded (43% - Q1 2011) but seems to indicate that following a surge of ‘good intentions’ in the firstfew months of the year, some savers simply find it too hard to put money away. Aviva Real Retirement Report 12
  13. 13. There are many reasons behind this including unemployment for those aged over-55 as well as those who are about to enterthis age group. Indeed, between December 2009 and February 2010, 4.8% of people between the ages of 50 and 64 wereunemployed; this rose to 5.2% between December 2011 and February 2012.In addition, the number of people who were considered ‘inactive’ (i.e. not trying to find work) had fallen from 31.9% (Dec 2009 toFeb 2010) to 31.1% (Dec 2011 to Feb 2012), which leads us to the conclusion that some people have come out of retirement toreturn to work and increase their disposable income.Pre-retirees (45%) continue to display the highest amount of ‘non-savers’ which is worrying as this seems to indicate that almosthalf of those approaching retirement are not putting aside money or simply relying on a lump sum from their annuity to boost theirsavings pot.Repayment the name of the game:While the number of people saving on a monthly basis has fallen, the number of people who own their own home outright hasactually increased from 62% (Q2 2011) to 64% (Q2 2012). In addition to this, 17% of over-55s own their home with a mortgage,7% live in private rental accommodation and 10% in social housing.The typical value of the over-55’s home is £236,474, which is higher than the average UK house (£159,883) as these tend to bewhere people have raised their children and then remained when they retire.Debt of those with a mortgage £223,958 £395,098 £208,398 £191,518 £167,411 £178,779 £87,500 £82,292 £51,786 £77,500 £47,794 £70,000 East London East Midlands West Midlands North East North West £191,827 £316,827 £281,327 £191,389 £165,402 £236,474 £43,056 £78,040 £70,000 £37,500 £45,833 £63,555 Scotland South East South West Wales Yorkshire UK House Price MortgagePeople are obviously taking advantage of the current low interest rate environment to repay their borrowing rather than buildinga nest egg for the future. Indeed, we’ve seen the typical amount owed drop to £13,685 across the whole age group, which is thelowest mean mortgage borrowing recorded since Q1 2010.However, almost one in five over-55s (17%) still have a mortgage. This falls as people age from 25% (55-64) to 12% (65-74) and5% (over-75s). While approaching and then entering retirement with any type of borrowing is not ideal, even those who do have amortgage appear to be making progress paying it off. The mean mortgage of those with a mortgage has fallen from £67,663 (Q12012) to £63,555 (Q2 2012). Aviva Real Retirement Report 13
  14. 14. Equity is an option:For the 12% of people between the ages of 65-74 who still have a mortgage (£64,024), their finances are likely to be squeezed.Indeed, someone of 65 who has 10-years left on their mortgage of £64,024 on a rate of 3% would need to find £625 per monthor 45% of their monthly income (£1,390) to meet their repayments.One potential solution for this problem is the use of equity release whereby they take out a loan against the value of their house,which is repaid when they pass away or go into long-term care. With the typical equity release loan being £49,069 (Q1 2012), thiswould mean that many retirees could repay their borrowing in full and significantly increase their disposable income - without theneed to move house.With 73% of people between the ages of 18 and 65 saying that they consider their property as part of their retirement planning,this situation is likely to become much more common in future. “People often say that they want to leave their home to their children as an inheritance. However, if retirees are using almost 50% of their income to service debt, they must – you would assume – be living a frugal existence. Retirees must take a holistic view of all of the assets available to them when looking to fund their retirement, including in many cases, their property.” Clive Bolton, ‘at retirement’ director for AvivaSecond properties:The term ‘buy-to-let mortgage’ was coined by the Association of Residential Letting Agents in 1995 so today’s over-55s have beenregularly reminded that their ‘property is an investment’ not just a home for almost 20 years now. Therefore, it is unsurprising that9% of over-55s claim to own a second property.However, as only 4% derive an income from property, this suggests that some of these are holiday homes, investment propertieswhich are yet to make a profit, or even homes that other family members occupy. While this generation obviously benefited fromhigh house price inflation, it appears that not all of their property investments are providing the income they envisaged. Aviva Real Retirement Report 14
  15. 15. Borrowingl Unsecured debt falls to £22,401 from £24,827 (Q1 2012)l Almost a quarter (23%) of over-75s have a credit cardThe typical over-55 with unsecured debts owes £22,401 which is down from £24,827 (Q1 2012) but still higher than a year ago whenit stood at £17,112 (Q2 2011). It appears that while people are repaying their borrowing, unexpected expenses or even holidays can putthem off track.The retiring (£24,707) typically owe the most followed by the pre-retirees (£23,565) and the long-term retired (£11,811). These statisticspoint to a trend whereby people can service their debts when they are working but around retirement there is a ‘blip’ before the debt isreduced by either using a lump sum from an annuity, cutting back on spending or even equity release.The most common form of borrowing is via credit card (30% of over-55s) followed by personal loans (13%) and overdraft (12%). “For the majority of this generation, debt has been a normal part of their financial planning. However, while people of working age might find it easier to increase their income to meet repayment obligations, this is not the case for a retiree, especially if they have health problems. Therefore, while debt in retirement is not necessarily a bad thing, people need to monitor borrowing carefully to ensure that it is managed prudently.” Clive Bolton, ‘at retirement’ director for AvivaDespite the fact that they are likely to have been retired for at least 10 years, almost a quarter (23%) of over-75s have credit carddebt that they do not repay in full on a monthly basis. Indeed, when you look at the figures it is concerning to see that the typicalover-75 with credit card debt owes 128% of their monthly income.Income vs. credit card debt of those with debt All over 55s 55-64 65-74 Over 75 % of age group with credit card 30% 33% 27% 23% Typical credit card debt £3,470 £3,967 £3,096 £1,689 Income £1,361 £1,359 £1,390 £1,318 Credit card debt as % of income 255% 292% 223% 128%In addition, the type of formal borrowing with the highest amount owed is personal loans (£6,544) followed by credit cards(£3,470) and hire purchase (£2,802). While only 6% of over-55s claim to use door step lenders, the typical debt (£846) means thatat some of the current rates advertised, they will be repaying far more than they borrowed to begin with. Credit Personal Hire Doorstep Loans Purchase Overdraft Storecards Cards lenders £3,470 £846 £766 £2,802 £1,564 £6,544 Aviva Real Retirement Report 15
  16. 16. Over-55 financial fears indexl Fears fall as over-55s become immune to bad newsl ew tracking categories find that 43% of over-55s are worried about N the rising cost of petrolSince the Real Retirement Report was launched in January 2010, it has tracked the views of the over-55s as to what they thoughtwould be the key threats to their standard of living over the short-term (six months) and the long term (five years).Using the data from the first Real Retirement Report as a base (100) it is possible to observe the trends over time and gain a broaderunderstanding of how the over-55s view their world.Short-term overview (Six months):The two main concerns over the next six-month are the rising cost of living (78%) and unexpected expenses (30%). Despite inflationfalling, the over-55s fears around the cost of living have actually remained steady at 78% (Q1 2012).However, when all the concerns tracked are considered, the index shows that people are actually less worried (80) than atthe start of the year (91 – Q1 2012). It seems that the over-55s are possibly starting to become less sensitive to the constant barrage ofbad news.Short-term fear index Short-term fear index 110 European Debt less worried - more worried Crisis Starts 100 Bank of England announces Fears of a double Quantitative Easing dip recession Measures 90 UK unemployment increases 80 Coalition Government Libyan uprising Spanish banking comes to power crisis 70 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 “It is interesting to note that with time, the over-55s seem to be reacting with less volatility to the constant barrage of bad news on the international economic landscape, caring more about the day-to-day income and expenditure in their own lives.” Clive Bolton, ‘at retirement’ director for Aviva Aviva Real Retirement Report 16
  17. 17. Long-term overview (Five years):Rising cost of living (71% - Q2 2012) and unexpected expenses (31%) are also key concerns for this group over the next five years.When the index is considered, it also shows that fears are falling from 91 (Q1 2012) to 81 (Q2 2012).As the outlook painted by the news at the moment is anything but bright, this does – at first glance – seem odd. However, it ispossible that the over-55s have decided to focus on what they can do (increase savings and repay debts) while managing theirconcerns around those things they cannot effect, to avoid being too worried to do anything at all.Long-term fear index Long-term fear index 110 European Debt Fears of a double less worried - more worried Crisis Starts Bank of England announces dip recession 100 Quantitative Easing UK unemployment Measures increases 90 80 Libyan uprising Spanish banking crisis 70 Coalition Government comes to power 60 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012New fear categories tracked:Having reviewed the over-55s spending habits, we discovered two new issues which they felt had the potential to impact on theirfinancial security. Almost half (43% - Q2 2012) of over-55s are worried about the rising cost of fuel in the short term and 6% haveconcerns about how they will support their family financially over the short-term.The retiring (53% - Q2 2012) who are still able to drive but have a more fixed income than the younger age group (55-64s) aremost worried about the rising cost of petrol as they struggle to acclimatise to their post-retirement finances. On the other hand, thelong-term retired (10% - Q2 2012) are the most concerned about how they will support their families financially, as many may bewitness to their own children struggling in the economic climate. Aviva Real Retirement Report 17
  18. 18. Overview of the over-55s financesover the last 28 monthsIncome:Incomes have risen from £1,239 (Q1 2010) to £1,361 (Q2 2012). Over this period, we have seen more over-55s working (29% - Q12010 vs. 32% - Q2 2012) but fewer people claiming benefits – 21% (Q1 2010) vs. 17% (Q2 2012).Income changes £1,600 £1,500 £1,400Income (£) ALL £1,300 55 -64 (Pre-retirees) £1,200 65 - 74 (Retiring) £1,100 Over 75 (Long-term Retired) £1,000 £900 Q1 2010 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q1 2012 Q2 DateSavings:Savings pots have also risen from £11,590 (Q1 2010) to £15,756 (Q2 2012). However, at the same time – potentially due to theimpact of the economic turmoil on lower income households - we have seen the number of people who do not have savingsincrease from 16% (Q1 2010) to 17% (Q2 2012) and the average number of people who do not save on a monthly basis increasefrom 39% (Q1 2010) to 42% (Q2 2012).Percentage of people who do not have savings 30% 25% ALL 20% 55 -64 (Pre-retirees) 15% 65 - 74 (Retiring) 10% Over 75 (Long-term Retired) 5% 0% Q1 2010 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q1 2012 Q2 Date Aviva Real Retirement Report 18
  19. 19. House prices:Despite the UK housing market experiencing a long period of negative or no growth, the over-55s have seen their house values risefrom £232,985 (Q1 2010) to £236,474 (Q2 2012). However, at the same time, the typical mortgage of those with a mortgage hasrisen from £54,564 (Q1 2010) to £63,555 (Q2 2012).Over-55s house prices £240,000 £235,000 £230,000 Price £225,000 £220,000 £215,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2010 2011 2012 DateUnsecured debt:The Real Retirement Report has only tracked debt broken down by specific categories since January 2011. Over this period, ithas risen from £19,878 (Q1 2011) to £22,401 (Q2 2012) which seems to indicate that while recently we have seen people repayborrowing; this is not a long-term trend.Typical over-55s debt £100,000 Debt £80,000 Mortgage £60,000 Price £40,000 £20,000 £0 Mar 11 May 11 Sept 11 Nov11 Mar-12 Jun 12 Date Aviva Real Retirement Report 19
  20. 20. Regionaloverview Average house price Average mortgage Own house outright Number of Over 55s1 East £223,958 £87,500 58% 1,706,0002 London £395,098 £70,000 63% 1,574,1003 East Midlands £208,398 £82,292 71% 1,305,2004 West Midlands £191,518 £51,786 65% 1,568,9005 North East £167,411 £77,500 61% 765,7006 North West £178,779 £47,794 65% 1,977,6007 Scotland £191,827 £43,056 61% 1,512,0008 South East £316,827 £78,040 58% 2,458,0009 South West £281,327 £70,000 68% 1,696,90010 Wales £191,389 £37,500 80% 938,10011 Yorkshire £165,402 £45,833 58% 1,475,100 UK £236,474 £63,555 64% 16,977,600 Aviva Real Retirement Report 20
  21. 21. So what does this tell us?This edition of the Real Retirement Report takes another look at over-55s finances and focuses a spotlight on the difficulttransition between work and retirement. We question how supportive employers are over this period and how much supportover-55s actually want. The findings lead us to the following practical suggestions:1. ake the lead in securing advice – With 64% of employers offering no additional or tailored support for employees T approaching retirement, you can’t just rely on your workplace for help planning your later life finances. However, it many not be due to lack of interest but simply because they have not thought of this element of support. Ask your HR department to see if there is a policy in place or if you can help them to develop a policy.2. Consider part-tirement – Some employers are happy to offer you assistance with planning your exit from work so consider whether you might want to work part-time or work beyond the traditional retirement age. With the end to the default retirement age, this is a real possibility for some people and can boost your retirement finances.3. Look at the wider implications of stopping work – While retiring will mean a drop in income for most people, there are other implications. Will you lose your private medical insurance and therefore do you need to take out a private policy? If you get a season ticket loan, will this run past your retirement date and need to be repaid early?4. What borrowing do you have? – Entering retirement with significant debts, even if you have assets, is not ideal. Consider how you can use your assets to reduce your debts and therefore your monthly outgoings.“Planning is vital if you want to enjoy a comfortable and stable retirement. Thisis not only planning throughout your career to ensure you put enough aside,but also planning your ultimate exit from your career and making use of all theoptions available to help improve your finances.”Clive Bolton, ‘at retirement’ director for Aviva Aviva Real Retirement Report 21
  22. 22. MethodologyThe Real Retirement Report was designed and produced by Wriglesworth Research. As part of this more than 13,610 UK consumersaged over 55 were interviewed between February 2010 and May 2012.This data was used to form the basis of the Aviva Real Retirement Report. Wherever possible, the same data parameters have been usedfor analysis but some additions or changes have been made as other tracking topics become apparent.Additional data sources include:l Office of National Statistics – Labour Market Figures – February 2012l Halifax House Price – April 2012l Working Lives Report – May 2012 – percentage of pension contributionsl Office of National Statistics – April 2012 – Inflation Datal Aviva Family Report – Family Spending – May 2012l Equity Release Council - Consumer Research – May 2012 – uses of property in retirementl Association of Residential Letting Agents – May 2012Technical notesl A median is described as the numeric value separating the upper half of a sample, a population, or a probability distribution, from the lower half. Thus for this report, the median is the person who is the upper middle of a sample.l An average or mean is a single value that is meant to typify a list of values. This is derived by adding all the values on a list together and then dividing by the number of items on said list. This can be skewed by particularly high or low values.Financial fears index:l The over-55s financial fears index uses data from 12 separate indicators – including fears over falling returns on investments, rises in the cost of living, unexpected expenses – to create an index that allows changing attitudes towards financial threats to be tracked over time. Using the data from the first Real Retirement Report as the base (100) it is possible to observe the trends over time and chart how people have been feeling about the all the pressures on their finances.For further details please contactTom WilsonAviva Press Office01904 684 283tom.wilson@aviva.co.uk Aviva Real Retirement Report 22
  23. 23. Aviva Real Retirement Report 23
  24. 24. RETIREPORT_V2_12_106000473 06/2012 © Aviva plc

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