Source: Mail Online
Around 15million middle-class families face an acute financial squeeze when they retire, with the worst-hit reduced to poverty, according to a report.
Their income will plunge by up to 60 per cent when they stop work – if they ever do.
Experts warn that unless they start to save more money, many will have to choose between retiring in poverty or working into their 70s or even 80s.
The report raises fears about those currently enjoying a household income before tax of between £22,000 and £56,000, who have been dubbed the ‘squeezed middle’.
It says that while they will not be living off a ‘cat food diet’ in their old age, they will be ‘disappointed, discontented and disgruntled’ by the amount on which they have to live.
The report, from the think-tank Chatham House, warns: ‘Many middle-class households look set to experience a considerable drop in their retirement income.
‘It will force them to considerably adjust their lifestyles and even to rely on social benefits.’
It adds that, despite working throughout their lives, ‘some may even slip into poverty’. The report warns of a chronic ‘expectations mismatch’ between the life they are used to, and the one they will actually be able to afford.
It found that most people ‘expect to maintain a level close to their pre-retirement lifestyle during retirement’, taking foreign holidays, eating out and indulging hobbies.
In reality their chronic lack of savings, the poor investment returns on pensions and dire annuity rates mean luxuries will have to be abandoned. One problem is that private sector firms have closed gold-plated pension schemes based on a final salary and replaced them with cheaper, less generous alternatives.
The financial impact of the change is enormous. The average pension paid by a final salary, or ‘defined benefit’, scheme is about £7,500 a year.
In comparison, the type of pension that private sector workers are being forced into – known as a ‘defined contribution’ scheme – currently pays an average of around £1,300 a year.
More of the original article: Retirement dreams in tatters for 15 million families