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The Difference Between The Best And Worst Pension Incomes Can Be Very Surprising

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Pensioners set to retire on a fraction of their normal income

The majority of workers aged between 50 and the state pension age will face a 20% drop in their income once they begin to rely solely on their retirement’s savings, according to new research.

Analysis from the Institute for Fiscal Studies also found that the majority of retirees (80%) will have an income replacement rate of less than 80%, while more than 40% will have a replacement rate of less than two thirds, resulting in their pension income levels dropping by a third.

However, the study also revealed that when other sources – including savings, pension credit, expected inheritances and the return owner-occupiers get from their homes – were taken into account, replacement rates weren’t as bad.

“In assessing how prepared households are for retirement, it is extremely important to take into account the fact that many households can fund their retirement from sources other than their pensions,” said Cormac O'Dea, senior research economist and report author.

“Retirement resources are not the same thing as pension income. Taking into account only income from state and private pensions, two-fifths of those approaching the state pension age will see their income fall by more than a third on retirement.

“However, using a comprehensive measure of income, the proportion facing such large income falls on retirement is just one-tenth.”

The recent introduction of automatic enrollment means that an employee on £20,000 a year would see their pension pot boosted by an annual figure of £1,154.88 in combined contributions.

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