[ARCHIVE] Aviva Real Retirement Report Summer 2012

The Aviva Real Retirement Report Summer - July 2012

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Welcome to Aviva’s Summer Real Retirement Report. We have been tracking the concerns and finances of the three

distinctive ages of retirement – pre-retiree (aged 55-64), retiring (65-74) and long-term retired (over 75) for over two

years 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. What

role do employers play? What role do employees want them to play? What type of help is expected? All of these

questions 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 a

list 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 their

retirement 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 saw

incomes 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 greater

care of their finances. Typical savings pots rose to £15,756 and unsecured debts fell to £22,401 as over-55s cut back

on 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 are

unable 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 the

tracking for this quarter reveals that this age group is less worried about the future than last quarter – potentially due

to 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 supporting

their family financially (6%). It will be interesting to follow how this changes over time, but the fact that almost half of

over-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

Foreword

Clive Bolton,

‘at-retirement’ director at Aviva

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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

– Are most likely to appreciate a list of recommended IFAs to approach for financial advice in the run up to retirement (23%)

l Retiring – (65 to 74 years old) have just passed the age at which people often retire …

– Are most likely (33%) to be receiving an income from their savings and investments. They also boast 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

– Are the most likely to think that employers have a role to pay in retirement planning (75%)

Population trends

The three ages of retirementThe Aviva Real Retirement Report considers retirement as three stages to reflect the fact that ‘retirement’ changes as people get older, rather than simply being a single event.


1986 1996 2003 2005 2007 2016 2026

% o

f p

op

ula

tio

n

55-64 65-74 75+

Years

5

6

7

8

9

10

11

12

13

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Recent figures show that older people still in employment (i.e. those older than the state pension age) has increased from 7.6% in 1993 to 12% in 2011. There are various reasons for this, such as the end to the default retirement age, better health, and of course financial pressures.

‘Part-tirement’:Around 32% of older people who are still employed are working part-time, compared to 13% of those below the state pension age. And older workers are twice as likely to be working part-time (66%) than full-time (34%). This strengthens the argument that while many older people are looking to cut back on their working hours to explore other interests they are not ready to stop working altogether.

Employee loyalty:While many people change jobs relatively frequently at the start of their careers, they tend to spend longer with those employers that 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 if they 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) and 65-74s (16 years). This may simply be because they have worked longer than other age groups or it may be evidence of the move towards people having numerous different jobs during their working lives.

The gateway to retirementl 64% of businesses offer employees no tailored retirement

support

l 68% of employees want employers to help them as they approach retirement

l Financial workshops (35%), retirement literature (35%) and a list of recommended financial advisers (21%) are the top requests

l Over-55s have typically been with their last employer for 16 years


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“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

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 their employer contributes 6.70% to. In addition to pensions, 17% of employees over-55s receive an annual bonus, 16% enjoy a subsidised 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 their staff make the most of their retirement. Almost two-thirds (64%) of businesses provide no additional or tailored support for those employees 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 ten companies offer people the ability to work part-time or flexi-time as they approach retirement and 9% look at extending their working 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 on financial issues surrounding retirement (9%).

What forms of support did your final employer provide when approaching retirement?


Workshops/Seminars on retirement finances

Benefit statementsAbility to reduce working hours or work flexi-time

Offer to extend my working life

Counselling / advice on how to adjust to

retirement

Written literature on the financial issues

surrounding retirement

A dedicated member of staff to talk to

about these issues

12% 9% 10%

9%7% 5%9%

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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 planning and 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 it was the only help they received.

However, while over-55s generally didn’t receive support from their employers when approaching retirement, 68% (Q2 2012) firmly believe 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 of recommended 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 offer workplace 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 rather lack of guidance as to how to access it.

Hindsight is 20:20:It is interesting to note that different age groups have different ideas of what type of support employers should provide. This is perhaps due to not only the older generations deeper understanding of the practicalities of retirement but also the increasing complexity of peoples retirement finances.

Over-75s are more likely to feel that employers should offer retirement workshops (39%) than 55-64s (32%). Whereas 55-64s (23%) are more likely to believe a list of approved intermediaries will be more useful than over-75s (16%). Over-75s (25%) are also more likely to feel that an employer does not have a role to play in a person’s retirement planning 55-64s (31%) – potentially as they were more likely to have had access to generous defined-benefit pension schemes.

Post-retirement engagement:When people retired thirty or forty years ago, along with the pocket-watch often came membership of a former employees club or perhaps at the very least, an invitation to the Christmas party. However, life has changed in more recent times and 73% of today’s over-55s had no further formal contact with their last employer.

For those who did, 10% enjoyed membership of a former employees club, 6% received regular correspondence on financial matters and 3% attended informal meetings such as coffee mornings.

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Over-55 RPI vs. all RPI

This is higher than the RPI annual inflation for the UK population as a whole (3.10%) and highlights the differences in over-55’s spending patterns and pressures. For example, they spend less on housing (£291 – May 2012) than families (£519) so are in less of a 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% vs 18% – 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 a fixed income.

Other contributing factors to the lower RPI are the minor decreases in the cost of clothing, footwear and furniture recorded since the 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 VAT increase, which occurred in January 2011, has now ‘dropped out’ of the annual figures so while inflation is down, this does not mean 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 differently depending on their typical expenditure. Over-75s (3.21%) had the highest RPI followed by 55-64s (2.98%) and 65-74s (2.96%).

Economic overviewl Over-55’s RPI (retail price index) annual inflation continued to fall

from 5.41% (Q4 – Dec 2011) to 4.05% (March 2012 – Q1 2012) to 3.21% (May – Q2 2012)

1%

2%

3%

4%

5%

6%

Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012

RPI over 55s

RPI all

% c

han

ge

Month

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To provide a true picture of the over-55s finances, the Real Retirement Report has tracked not only the impact of inflation but also the 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 only increased £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

Over-75s appear to have seen the largest income increase but this is likely to be due to the fact that they have more generous age related 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 the percentage 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

This 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.

Income l Over-55s monthly income grows by £122 since February 2010

l However, fewer over-65s derive an income from work and the number of benefit claimants begins to rise

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 +£184

2010 Summer 2011 Summer 2012 Summer12% 11% 10%

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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 which drops to 16% of 65-74s and 7% of over-75s.

Percentage of over-55s who earn an income from wages

It is interesting to note that over the last 28-months, while the number of 55-64s has increased, the number of people working amongst 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 their working lives for longer, the recession and potential ill health has meant that fewer people were able to extend their careers into later life.

Income from assets:Over a quarter (27%) of over-55s rely on savings/investments for a percentage of their income. This has remained relatively stable over the last few years - Q2 2010 (30%) and Q2 2011 (26%) – which suggests that while some people are chipping away at their capital, 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

Guaranteed investments, allowing protected stock market exposure, are becoming increasingly popular in the current uncertain market and offer a managed risk approach so many over-55s are also likely to choose these as a home for their savings. On the other end of the scale, the number of over-55s who derive an income from benefits has risen slightly since the start of the year from 15% (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 to claim 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%).

“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 Aviva

All 55 – 64s 65 – 74s Over 75s

Feb 2010 29% 41% 18% 9%

June 2012 32% 51% 16% 7%

£ £ £

State pension 62%

Employer pension 39%

Personal pension 34%

Wages/other earned income 32%

Investments/savings 27%

Spouses pension 22%Benefits inc. unemployment 17%

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While the over-55s have different spending patterns than other groups within the UK, they still spend the majority of their income on 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

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 expenses have seen substantial inflation – fuel and light (+10.96%) and clothing and footwear (+9.05%). However, these are the exception to the 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 essentials and in doing so increase the amount they are able to save for the future.

While spending on food, motoring and postage, telephone and internet have remained relatively constant, spending on items such as 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 seeking cheaper brands. However, it could also be a result of people consciously changing their lifestyle habits to economise. The NHS has reported a fall in alcohol-related admissions in the last 12 months among teenagers and young adults, so the decline in the consumption of alcohol could also be a trend for the over-55s.

Expenditurel More is spent on debt repayment (15%) than food (14%).

l Luxury spending falls as essential spending holds steady

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%


0% 5% 10% 15% 20% 25%

Entertainment

Motoring

Fuel and Light

Food

Debt repayment

Housing (mortgage or rent)

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“Many of today’s over-55s remember far more austere times than people who are in their twenties or thirties. Therefore, while they are the baby-boom generation who many perceive as having substantial financial advantages, they also know the value of reducing borrowing and cutting spending.”Clive Bolton, ‘at retirement’ director for Aviva


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Over the last quarter, over-55’s median savings have risen from £14,198 (Q1 2012) to £15,756 (Q2 2012). While this is obviously good news and shows that the trend towards boosting savings is common across all age groups, when you dig deeper into the statistics, 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 a jump in savings pots at retirement as people appear to use the tax-free lump sum from their annuity to boost their savings, followed by a gradual decline in assets as people age and need to make use of these savings.

Typical savings pots of the over-55s

That said, savings pots for the pre-retirees have increased since the Real Retirement Report was launched in January 2010 so people are 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 likely to be due to people using their capital to boost their income in a low interest rate environment, people living longer and people entering 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 percentage point from Q1 2010 (16% - Q1 2010) when the report was launched. This seems to indicate that there is a ‘hard-core’ group of people 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 people who 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

This is not the highest level recorded (43% - Q1 2011) but seems to indicate that following a surge of ‘good intentions’ in the first few months of the year, some savers simply find it too hard to put money away.

Assetsl Typical over-55s savings pot rose to £15,756

l Almost one in five over-55s has a mortgage that they need to pay off

l The typical value of the over-55s home is now £236,474

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 £12,998

2010 Summer

£29

2012 Spring

£39.97

2011 Summer

£33

2012 Summer

£31.05

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There are many reasons behind this including unemployment for those aged over-55 as well as those who are about to enter this age group. Indeed, between December 2009 and February 2010, 4.8% of people between the ages of 50 and 64 were unemployed; 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 to Feb 2010) to 31.1% (Dec 2011 to Feb 2012), which leads us to the conclusion that some people have come out of retirement to return 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 almost half of those approaching retirement are not putting aside money or simply relying on a lump sum from their annuity to boost their savings 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 has actually 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 be where people have raised their children and then remained when they retire.

Debt of those with a mortgage

People are obviously taking advantage of the current low interest rate environment to repay their borrowing rather than building a nest egg for the future. Indeed, we’ve seen the typical amount owed drop to £13,685 across the whole age group, which is the lowest 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) and 5% (over-75s). While approaching and then entering retirement with any type of borrowing is not ideal, even those who do have a mortgage appear to be making progress paying it off. The mean mortgage of those with a mortgage has fallen from £67,663 (Q1 2012) to £63,555 (Q2 2012).

East

£223,958

£87,500

House Price Mortgage

Scotland

£191,827

£43,056

London

£395,098

£70,000

South East

£316,827

£78,040

East Midlands

£208,398

£82,292

South West

£281,327

£70,000

West Midlands

£191,518

£51,786

Wales

£191,389

£37,500

North East

£167,411

£77,500

Yorkshire

£165,402

£45,833

North West

£178,779

£47,794

UK

£236,474

£63,555

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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 month or 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), this would mean that many retirees could repay their borrowing in full and significantly increase their disposable income - without the need 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.

Second properties:The term ‘buy-to-let mortgage’ was coined by the Association of Residential Letting Agents in 1995 so today’s over-55s have been regularly reminded that their ‘property is an investment’ not just a home for almost 20 years now. Therefore, it is unsurprising that 9% 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 properties which are yet to make a profit, or even homes that other family members occupy. While this generation obviously benefited from high house price inflation, it appears that not all of their property investments are providing the income they envisaged.


“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 Aviva

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The typical over-55 with unsecured debts owes £22,401 which is down from £24,827 (Q1 2012) but still higher than a year ago when it stood at £17,112 (Q2 2011). It appears that while people are repaying their borrowing, unexpected expenses or even holidays can put them 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 statistics point to a trend whereby people can service their debts when they are working but around retirement there is a ‘blip’ before the debt is reduced 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%).

Despite the fact that they are likely to have been retired for at least 10 years, almost a quarter (23%) of over-75s have credit card debt 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 typical over-75 with credit card debt owes 128% of their monthly income.

Income vs. credit card debt of those with debt

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 that at some of the current rates advertised, they will be repaying far more than they borrowed to begin with.


Borrowingl Unsecured debt falls to £22,401 from £24,827 (Q1 2012)

l Almost a quarter (23%) of over-75s have a credit card

“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 Aviva

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%

Credit Cards

£3,470

Personal Loans

£6,544

Hire Purchase

£2,802

Overdraft

£1,564

Doorstep lenders

£846

Storecards

£766

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Since the Real Retirement Report was launched in January 2010, it has tracked the views of the over-55s as to what they thought would 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 broader understanding 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 inflation falling, 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 at the start of the year (91 – Q1 2012). It seems that the over-55s are possibly starting to become less sensitive to the constant barrage of bad news.

Short-term fear index

Over-55 financial fears indexl Fears fall as over-55s become immune to bad news

l New tracking categories find that 43% of over-55s are worried about the rising cost of petrol


70

80

90

100

110

Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012

Short-term fear index

Q2 2012

less

wor

ried

- mor

e w

orrie

d European DebtCrisis Starts

Libyan uprising

UK unemploymentincreases

Fears of a doubledip recession

Spanish bankingcrisis

Bank of England announcesQuantitative Easing

Measures

Coalition Governmentcomes to power

“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

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60

70

80

90

100

110

Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012

Long-term fear index

Q2 2012

less

wor

ried

- mor

e w

orrie

d

European DebtCrisis Starts

Libyan uprising

Fears of a doubledip recession Bank of England announces

Quantitative EasingMeasures

Coalition Governmentcomes to power

UK unemploymentincreases

Spanish bankingcrisis

New fear categories tracked:Having reviewed the over-55s spending habits, we discovered two new issues which they felt had the potential to impact on their financial security. Almost half (43% - Q2 2012) of over-55s are worried about the rising cost of fuel in the short term and 6% have concerns 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) are most worried about the rising cost of petrol as they struggle to acclimatise to their post-retirement finances. On the other hand, the long-term retired (10% - Q2 2012) are the most concerned about how they will support their families financially, as many may be witness to their own children struggling in the economic climate.

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 is possible that the over-55s have decided to focus on what they can do (increase savings and repay debts) while managing their concerns around those things they cannot effect, to avoid being too worried to do anything at all.

Long-term fear index

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Income:Incomes have risen from £1,239 (Q1 2010) to £1,361 (Q2 2012). Over this period, we have seen more over-55s working (29% - Q1 2010 vs. 32% - Q2 2012) but fewer people claiming benefits – 21% (Q1 2010) vs. 17% (Q2 2012).

Income changes

Savings:Savings pots have also risen from £11,590 (Q1 2010) to £15,756 (Q2 2012). However, at the same time – potentially due to the impact of the economic turmoil on lower income households - we have seen the number of people who do not have savings increase from 16% (Q1 2010) to 17% (Q2 2012) and the average number of people who do not save on a monthly basis increase from 39% (Q1 2010) to 42% (Q2 2012).

Percentage of people who do not have savings

£900

£1,000

£1,100

£1,200

£1,300

£1,400

£1,500

£1,600

Q1 2010 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q2 Q1 2012

ALL 55 -64 (Pre-retirees) 65 - 74 (Retiring) Over 75 (Long-term Retired)

Inco

me

(£)

Date


Overview of the over-55s finances over the last 28 months

0%

5%

10%

15%

20%

25%

30%

Q1 2010 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q2 Q1 2012


Date

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House prices:Despite the UK housing market experiencing a long period of negative or no growth, the over-55s have seen their house values rise from £232,985 (Q1 2010) to £236,474 (Q2 2012). However, at the same time, the typical mortgage of those with a mortgage has risen from £54,564 (Q1 2010) to £63,555 (Q2 2012).

Over-55s house prices

Unsecured debt:The Real Retirement Report has only tracked debt broken down by specific categories since January 2011. Over this period, it has risen from £19,878 (Q1 2011) to £22,401 (Q2 2012) which seems to indicate that while recently we have seen people repay borrowing; this is not a long-term trend.

Typical over-55s debt

0%

5%

10%

15%

20%

25%

30%

Q1 2010 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q2 Q1 2012


Date

£215,000

£220,000

£225,000

£230,000

£235,000

£240,000

Q1

2010 2011 2012

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Date

Pric

e

£0

£20,000

£40,000

£60,000

£80,000

£100,000

Mar 11 May 11 Sept 11 Nov11 Mar-12 Jun 12

Date

Pric

e

Debt

Mortgage

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Average house price Average mortgage Own house outright Number of Over 55s

1 East £223,958 £87,500 58% 1,706,000

2 London £395,098 £70,000 63% 1,574,100

3 East Midlands £208,398 £82,292 71% 1,305,200

4 West Midlands £191,518 £51,786 65% 1,568,900

5 North East £167,411 £77,500 61% 765,700

6 North West £178,779 £47,794 65% 1,977,600

7 Scotland £191,827 £43,056 61% 1,512,000

8 South East £316,827 £78,040 58% 2,458,000

9 South West £281,327 £70,000 68% 1,696,900

10 Wales £191,389 £37,500 80% 938,100

11 Yorkshire £165,402 £45,833 58% 1,475,100

UK £236,474 £63,555 64% 16,977,600

Regional overview


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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 difficult transition between work and retirement. We question how supportive employers are over this period and how much support over-55s actually want. The findings lead us to the following practical suggestions:

1. Take the lead in securing advice – With 64% of employers offering no additional or tailored support for employees 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. This is 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 the options available to help improve your finances.”Clive Bolton, ‘at retirement’ director for Aviva

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MethodologyThe Real Retirement Report was designed and produced by Wriglesworth Research. As part of this more than 13,610 UK consumers aged 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 used for 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 2012

l Halifax House Price – April 2012

l Working Lives Report – May 2012 – percentage of pension contributions

l Office of National Statistics – April 2012 – Inflation Data

l Aviva Family Report – Family Spending – May 2012

l Equity Release Council - Consumer Research – May 2012 – uses of property in retirement

l Association of Residential Letting Agents – May 2012

Technical 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 contact

Tom Wilson

Aviva Press Office

01904 684 283

[email protected]

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