While the economists and politicians may disagree as to what lies ahead for our economy, the nation’s army of older people are basing their retirement plans on steady returns and low inflation and interest rates… with almost a third contemplating downsizing.
The new figures come from www.RetireEasy.co.uk, the free online retirement planning software, described by the Investors Chronicle as the “holy grail solution to retirement planning”. The RetireEasy Index has been introduced as a quarterly analysis of the financial expectations of older people: an anonymised analysis of the views of 1500 of their subscribers who are either entering or already in retirement.
The first one, published on 4 November, reveals widespread confidence in low interest rates and steady investment returns over the next couple of decades. Some 31% have downsizing on the horizon at some point in their retirement – which is potentially very good news for the housing market.
Perhaps more worrying for the Government is that fact that very few (12%) are currently planning for care costs in later life and even fewer (4%) are thinking of returning to work to boost their retirement income.
The freeing up of the pensions market seems to have dealt a heavy blow to the annuities market, with just 10% of those still to convert their private pensions or SIPPS planning to invest in annuities.
The data reveal that most expect steady economic conditions over the coming years, with inflation averaging just 2.28%, mortgage rates of 2.93% and house values to rise by 3.06% per year.
Investments, meanwhile, are expected to increase in value at rates well above inflation: 3.67% for the capital growth and dividend yields at 3.19%. Payments from private pensions are expected to increase by 4.19% per annum.
“Because these figures are the average assumptions of some 1,500 people, all of whom are taking an active involvement in their retirement planning, they do represent a reliable snapshot of what the British public is currently thinking,” says RetireEasy Director Tony Watts OBE.
“Whether you consider them overly optimistic or pessimistic is not the issue: these are the assumptions people are making when deciding whether they can afford to retire, or how much they will have to spend in the years to come – which is why they use the RetireEasy software program.
“You don’t have to go far back into the past to see periods of far greater volatility – with house prices shooting up or down, the stock market plummeting and mortgage rates that are much higher than today. But the last few years seem to have reassured people that we are in for a prolonged period of steady, if unexciting, economic times.”
The data was extracted anonymously from 1500 of RetireEasy subscribers who enter their assumptions on what lies ahead in terms of interest rates, house prices, investment performances and so on. The data is entered when they fill in their profiles in order to see whether or when they can afford to retire, or how much they can expect to live on during their retirement years.
“The unique advantage of the software,” continues Mr Watts, “is that subscribers can vary their assumptions as often as they wish to test out various scenarios – such a rise in interest rates, a fall in investment returns, downsizing, receiving an inheritance or having an unexpected expense.
“Personally, in the current uncertain global economic climate, I would want to factor in some worst case scenarios before deciding whether or not I could afford to retire!”
Three other fascinating facts also emerged from the data extraction which should be of interest to the financial planning sector as well as the Government. One is that just 10% of those who are currently paying into a SIPP have plans to convert it to an annuity. Another is that just 12% have currently made any plans to fund their care. Finally, of those already in retirement, 4% are considering returning to work to bolster their income.
“The drop in popularity of annuities will be of no surprise, but it may disappoint the Government to learn that few people are planning for the future cost of care or considering boosting their retirement funds.”
Media enquiries: Tony Watts 07738 167788 / Naomi Collinson 07540 264185
Issued for: RetireEasy Limited, 20 Manor Courtyard, Hughenden Avenue, High Wycombe, HP13 5RE