The Aviva Real Retirement Report

Spring 2013

Foreword

Clive Bolton, managing director of Avivas at retirement business Welcome to Avivas Spring 2013 Real Retirement Report. We are into our third year of tracking the concerns and finances across three distinctive ages of retirement pre-retirees (aged 55-64), retiring (65-74) and long-term retired (over-75) and continue to find new realities and challenges emerging. Each report focuses on an aspect of living that is especially relevant to these age groups and their finances. The Spring 2013 spotlight tackles the taboo of inheritance and asks what it looks like in the current economic and social climate. How much importance do the over-55s place on leaving an inheritance? What do people plan to leave and when do they begin to address the issue? Do financial pressures mean todays over-55s are more likely to pass their wealth on during retirement? These answers and more are revealed on page 4. Many over-55s are confident they will pass on more than their parents did before them: despite the current economic pressures we find that half take this upbeat view, although others are mindful of rising living costs and the possible need to pay for long-term care in later life. By the age of 65, leaving an inheritance outweighs supporting close family members as a financial priority. Nonetheless people are open to considering alternative ways to pass on their savings and assets: for example, by offering cash loans or gifts to their children and grandchildren or by jointly investing in property. It is telling, however, that pre-retirees are the least optimistic about the prospect of leaving an inheritance. Although increasing numbers count on a wage to boost their monthly income, this suggests that careful financial planning will be essential to help them realise this ambition in later life. This is especially true for retirees when rising living costs are eroding savings pots and pushing debt repayment down their list of priorities. It is encouraging to see incomes rise since December 2012, but the over-55s are under no illusions that the general atmosphere of austerity is here for some time yet. Both short and long-term financial fears have risen significantly since our last report, and with further welfare cuts in the offing, the need to carefully balance finances in later life continues to be a priority.

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The three ages of retirement

The 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.
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Pre-retirees (55 to 64 years old) are on the countdown to retirement

 But more than one in four (27%) still have an outstanding mortgage, with an average outstanding balance of 70,093 on a property typically worth 224,874.  They are also the most likely to save nothing each month (38%) and the most likely to be in debt (10%), with a third (33%) owing money on credit cards.  When it comes to inheritance, pre-retirees are the least optimistic about leaving more inheritance than their parents (45%) and the most likely to expect to leave nothing behind (21%).
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Retiring (65 to 74 years old) have just passed the age at which people often retire

 Are unlikely to have no savings (9%) and save the highest amount on a monthly basis (57.73). They are also most likely to receive an income from an employer pension (47%).  However, they have the lowest valued homes on average (213,672) and those with unsecured debt owe the largest amount (23,856).  They are the most likely to have started planning to leave an inheritance in earlier life after becoming a parent (18%) and believe this is the best time to do so (28%).
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Long-term retired (75 years and older) most are 10 years or more into retirement

 Have the most valuable homes (236,899) and are the most likely to own their house outright (80%). They also have the healthiest savings pots (14,998).  They have the lowest levels of unsecured debt (8,372) but almost one in four (24%) owe money on credit cards. Are most likely to feel that leaving an inheritance is their biggest financial priority (13%).

Gradually ageing population

13 12 % of population 11 10 9 8 7 6 5 1986 1996 2003 2005 Years 2007 2016 2026 55-64 65-74 75+

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The shape of inheritance in 2013

Pre-retirees are the least convinced about their prospects of leaving an inheritance Property is an increasingly important feature of inheritance plans Cash loans, gifts and joint property investments are popular alternatives
The passing of wealth from generation to generation is a time-honoured tradition, but in the UK in 2013, many over-55s face practical, financial and social considerations that challenge the conventional idea of leaving an inheritance. On one hand, there is the question of how best they can use their savings and assets to fund their lifestyle in retirement, including meeting costs such as long-term care. On the other, many will see younger members of their family encountering financial difficulties as they look to get on the property ladder or raise families of their own. Together these add up to a strong rationale for the over-55s to consider forgoing the traditional idea of inheritance and take a new approach to sharing their wealth during retirement. That is assuming, in these times of austerity, they are able to do so while still maintaining a reasonable quality of life in their later years.

The age of reckoning:

Looking at where inheritance features as a financial priority, the overwhelming majority (77%) of over-55s are more focused on paying for their own living costs, followed by supporting close family (17%). Leaving an inheritance features as the biggest financial consideration for just 7% of over-55s, although predictably this increases with age: 13% of over-75s rate this as their top priority, compared with 7% of 65-74s and 5% of 55-64s. Between 45 and 55 is the time when supporting close family is overtaken as a priority by paying living costs. It is not until the decade after reaching 65 that inheritance becomes the second most common priority. Its importance increases exponentially with each decade, but even by their mid 80s, less than one in five (18%) cite this as their biggest financial concern.

How inheritance features among the over-55s biggest financial priorities:

Paying living costs Aged 45 Aged 55 Aged 65 Aged 75 Aged 85 50% 63% 70% 69% 73% Supporting close family 48% 33% 22% 12% 9% Leaving an inheritance 2% 4% 8% 19% 18%

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Youthful pessimism:
Despite the countrys economic struggles, more than half of over-55s (53%) feel they will leave more of an inheritance than their parents did with over a third (37%) expecting to leave significantly more. However, this conviction is strongest among those who are furthest into their retirement (41% of 65-74s and 47% of over75s). Despite the fact 58% of 55-64s were wage earners in May 2013, compared with 46% in May 2010, they are relatively downbeat about their prospects of leaving an inheritance. Only 32% expect to leave significantly more than their parents did, while 21% feel they will not be able to leave an inheritance at all.

What inheritance looks like in 2013:

Savings were the most common inheritance that todays over-55s received from their parents (42%), followed by the family home (34%) and jewellery or other heirlooms (30%). In terms of what they expect to leave, property takes on more importance: 65% expect to leave their family home, compared with just 34% who were left this by their own parents. This expectation is considerably stronger among over-75s (72%) than 55-64s (61%).

What the over-55s received as an inheritance and what they expect to leave:
70% 60% 50% 40% 30% 20% 10% 0%
The family home Other property or land Savings Pension or annuity funds Other personal investments (e.g. stocks and shares) Business assets Jewellery and family heirlooms Nothing Received Expect to leave

While jewellery and heirlooms continue to feature in the inheritance plans for 42% of over-55s (including 46% of women), personal financial investments such as stocks and shares are also significant. Nearly one in four (24%) expect to leave these, while just 7% received similar from their parents. In a sign of optimism that their available assets will survive the drain of living costs in later life, 17% of over-55s expect to leave some pension funds or savings from an annuity income as part of their inheritance. This includes 20% of 55-64s, but just 13% of the two older age groups. Only half as many people expect to leave nothing (17%) compared to those whose parents did likewise (33%).

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Turning plans into actions:

The over-55s are divided on the best time to begin planning to leave an inheritance. Some are motivated by key life events: over a quarter (26%) say becoming a parent is the ideal trigger, followed by 19% who say the final years before retirement or early years of retirement are the best starting point. Others are more motivated by circumstance, including 15% who feel that plans are better left until you have something valuable to leave, and 13% who say achieving a decent wage is the best prompt.

When people think they should plan their inheritance and when they actually do:
The best time to act After becoming a parent After becoming a grandparent Once earning a decent wage In the years leading up to retirement In the first years of retirement In late retirement When I have something valuable to leave 26% 3% 13% 12% 7% 6% 15% When people act 17% 5% 8% 13% 10% 8% 19%

In reality, when combined, the act of retirement is the main trigger: 23% of over-55s start planning at this point, comprising 13% who do so in the final approach to retirement and 10% who make plans in the first years after finishing work. The financial pressures of becoming a parent mean significantly fewer (17%) actually start planning their inheritance at this stage than feel they should do. Earning a decent wage is also less of a trigger in practice than in theory; instead, almost one in five (19%) act only when they have something valuable to leave.

Competing pressures in later life:

A third (33%) of over-55s say they have already sorted out their inheritance planning, predictably rising through the ages (from 27% of 55-64s to 38% of 65-74s and 47% of over-75s). While it may not be their main financial priority, inheritance is clearly at the forefront of peoples minds: only 2% of over-55s say they are too young to think about it and only 3% say they dont have time. However, almost one in five (19%) believe they dont have enough savings or assets to leave an inheritance, with the most concern among pre-retirees (22%). Almost a third of all over-55s (29%) believe they will need their savings or assets to pay for day-to-day living costs, while a similar number (28%) believe they will be needed to cover the eventuality of long-term care bills. The worry about meeting long-term care costs is strongest among the 65-74s and over-75s (both 32%), while concerns about dayto-day living costs are most prevalent among 55-64s (32%). More than one in three (35%) say the Government proposals to cap individual contributions to long-term care costs have had no effect on their inheritance planning. But for almost one in ten 55-64s (9%) the proposals have been a rude awakening as they did not realise how expensive this could be.

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Dividing up the family fortune:

Over half (53%) of over-55s plan to divide their inheritance equally between close family members, while 12% say that some will receive more depending on how close their relationship is. Perhaps because they are the furthest on with their planning, the over75s are the most likely (11% vs. 6% overall) to give more support to those family members who need it most for example, if they are raising children or want to buy a home.

The price of leaving an inheritance:

Shopping around for the cheapest deals for example, during their weekly food shop is the most popular step the over-55s would take (18%) during their retirement to either preserve the inheritance they plan to leave or provide financial support to family members. More than one in ten (11%, including 16% of 55-64s) would work part-time during retirement to do the same, while 12% (including 14% of 55-64s) would downsize or move to a cheaper home. One in ten (10%) would take fewer holidays abroad and 8% would make fewer home improvements.

Common sacrifices to preserve an inheritance or give financial support to family:

Shop around for the cheapest deals e.g. for the weekly shop Downsize or move to a cheaper home to free up some cash Work part-time during retirement Take fewer holidays abroad Make fewer home improvements Buy fewer takeaway meals or eat out less Sell some valuables or hold a car boot sale Begin saving to pay for long-term care so my family doesnt have to pay Swap a car for a cheaper model None of the above 18% 12% 11% 10% 8% 7% 7% 6% 4% 60%

However, 60% say they would not take any of these actions either to preserve an inheritance or offer financial support to their family during retirement. This perhaps shows how much the over-55s appreciate what luxuries they can afford when the country according to the House of Lords Committee report, Ready for Ageing? is woefully underprepared to meet the needs of its growing elderly population.

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Is inheritance pass?
In the current economic climate there are plenty of reasons to think that some over-55s might feel compelled to give financial support to younger relatives during their retirement, rather than waiting to leave an inheritance. Giving a cash loan to family for example, to help with purchasing a home is the most common kind of financial support offered instead of leaving an inheritance: 21% of over-55s have done this, including 25% of over-75s. This is also the most common alternative that over-55s say they would consider, along with regularly giving money to family to avoid inheritance tax (both 20%). However, only 8% have actually done the latter, and almost half (45%) oppose this course of action. Pre-retirees are the most likely to consider it (25%).

Alternatives to leaving an inheritance:

I would do this Give a cash loan to a family member who needed it, for example, to buy a house Invest jointly in property with other family members Regularly give money to family members to avoid inheritance tax Take out tax-free cash from a pension fund to give to others 20% 17% 20% 7% I have done this 21% 3% 8% 3%

Putting on a brave face:

Almost half of over-55s (44%) say the economic climate has not affected their plans to leave an inheritance. This feeling is strongest among over-75s (49%), but pre-retirees feel more of an impact (41%). Almost one in five (19%) of this group say they will be able to leave less than they would like to as a result, while 11% of all over-55s say the cost of living will prevent them leaving any inheritance. Across the board, 16% of over-55s say the housing market crash has had an effect, either by reducing the inheritance they will leave or limiting the housing equity they can draw on in retirement. For a hardy 11%, however, this period of austerity has focused their minds on their later life finances, making them more money-conscious and improving their inheritance planning.

Although many over-55s are hopeful of leaving an inheritance, the concerns of those on the final approach to retirement suggest this may become less common as they find their finances squeezed in later life. Even so, there are steps they can take to improve their chances. For example, lifetime mortgages can be taken out with an inheritance guarantee so that people can rest easy that an agreed amount of their propertys value is fully protected.
Clive Bolton, managing director of Avivas at retirement business

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Economic overview
Over-55s RPI (Retail Price Index) annual inflation increased significantly between December 2012 and May 2013, rising from 2.74% to 3.4%. While this is considerably lower than the same time last year (4.05%), over-55s RPI has risen extensively in the three years since the Real Retirement Report began, when it was just 1.69% (Q1 2010).
This is also the first time the over-55s RPI has been higher than the RPI for all consumers (3.3% - April 2013) in the last 12 months, which is unwelcome news for the 18% of over-55s who earn less than 750 a month.

RPI since February 2010

6% 5%

RPI over 55s RPI all

% change

4% 3% 2% 1%

2010

2011

2012

2013

Month

The vital costs that the majority of over-55s need to meet have continued to rise, with year-on-year increases in inflation for food (+3.63%), housing (+2.27%) and travel fares (+5.32%). Following the recent hike in energy prices, fuel and light has experienced one of the largest increases in inflation, up +7.24% over the last year. Soaring energy bills suggest this may well get worse in the months ahead, putting a considerable strain on the over-55s finances. Other costs which have seen notable increases include household services (+7.16%) and clothing (+6.38%). Looking ahead, the Bank of England base rate has stood at 0.5% since March 2009 and shows no sign of rising in the immediate future particularly as the Bank looks to shepherd the economy towards permanent recovery and stable growth by keeping interest rates low. This combined with other factors such as rising energy prices, means inflation is likely to remain relatively high. However, as the UK has staved off the threat of a triple-dip recession, those over-55s who have repaid most of their borrowing and added to their savings pots will be best placed to benefit from any growth.

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Income
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Over-75s left trailing by income gains among younger age groups Savings and investments relied on less as a source of income in later life Wages increase as retirees remain longer in employment

Since January 2010, the Real Retirement Report has tracked the level of income the over-55s receive, where it comes from and how they use it to meet a range of living costs.

Level of income:
The median monthly income of the over-55s dropped slightly since December 2012 (1,444) to 1,412 in May 2013. This still represents an average gain of 51 in the last year (1,361 May 2012) and 162 over the last three years (1,250 May 2010). Those approaching retirement have experienced the biggest rise in their income over the last year. Between May 2012 and May 2013, the 55-64s saw their median income grow by 166 while in a sign of falling returns on savings, investments and pension funds both older age groups have seen their incomes scaled back. The typical 65-74 year old suffered an 18 loss of monthly income in the last 12 months, while the typical over-75 in May 2013 survives on 109 less each month than they did last year. The longer-term picture is more positive, with over-75s only experiencing a 12 loss of income over the last three years. Both younger age groups have made significant gains over the same period: the 55-64s adding 269 to their typical monthly income, and the 65-74s gaining 102.

Contrasting income growth among the UKs over-55s:

All May 2010 May 2012 May 2013 One-year gain Three-year gain 1,250 1,361 1,412 51 162 55 64s 1,256 1,359 1,525 166 269 65 74s 1,270 1,390 1,372 -18 102 over-75s 1,221 1,318 1,209 -109 -12

Income bands:
As people increasingly extend their working lives, the number of over-55s with less than 500 of income a month has fallen in recent years. Just 10% fell into this category in May 2013, down from 11% in May 2011 and 12% in May 2010. At the opposite end of the scale, the number of over-55s receiving more than 2,500 a month appears to have peaked. Having reached 23% in September 2012, up from 17% in February 2010, it fell back to 20% in May 2013. The over-75s have been most affected, with just 11% earning more than 2,500 in May 2013 compared with 17% in September 2012.

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Sources of income:
As savings rates and investment returns have dropped in recent years, noticeably fewer over-55s receive an income from this source. Three in ten (30%) identified investments/savings as a source of income in May 2010, falling to 27% in May last year and just 24% in both December 2012 and May 2013. The declining role of investments and savings is most visible among those aged 55 to 64. While 35% of over-75s drew on this income in May 2013 (vs. 37% - May 2010), just 20% of 55-64s (vs. 26% - May 2010) and 24% of 65-74s (vs. 35% - May 2010) did the same.

How many over-55s use a range of income sources:

Investments/savings Personal pensions
45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2010 2011 2012 2013

Annuities Wages

Date

In contrast, wages, personal pensions and annuities have each played a part in filling the hole. Overall, 35% of over-55s cited personal pensions as a source of income in May 2013 (vs. 33% in May 2010); 10% received an income from annuities (vs. 8% in May 2010); and 37% received a wage or other earned income, up from 33% in the last three years. Across the age groups, the over-75s have driven the rise in income received from personal pensions or annuity products. Almost half (44%) of over-75s now have a personal pension, compared with 37% in May 2010, and 17% receive income from annuities whereas just 9% did in May 2010.

Impact of benefit changes:

Coupled with rising employment levels for retirees, changes to state benefits mean that noticeably fewer over-55s (15%) received an income from this source in May 2013 than at the equivalent point last year (17%) or three years ago (22%). With additional benefit cuts revealed in the 2013 Budget as the austerity programme extends to 2018, this number could fall further in the months and years ahead.

It is encouraging to see the growing number of over-55s with personal pension funds. For those who want to exchange their pension pots for the flexibility and control of income drawdown, the death benefits this includes can leave your beneficiaries with a range of options to consider. Whether taking out a lump sum, continuing with income drawdown or converting it into an annuity, they have the freedom to decide how best to use the available funds.
Clive Bolton, managing director of Avivas at retirement business

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Expenditure
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Stable outgoings over the last 12 months mask a tale of shifting priorities Rising travel, fuel and housing costs limit ability to make debt repayments

The typical monthly outgoings among over-55s in May 2013 amounted to 1,302: just 1 lower than in May 2012, but 61 more than in December 2012 and almost 250 more than in December 2010.

Typical monthly outgoings of the over-55s

May 13 2012 ay 20 M 1,30 2 3 1,30 Dec 2012 Dec 2010 1,241 1,037

While the total amount of spending has changed little over the last year, there has been a noticeable shift in the focus of peoples outgoings. Compared with May 2012, the over-55s are setting aside 23 less each month to repay debts, but 14 more for food and 16 more for mortgage or rent payments. Compared with the end of 2012, the increase in mortgage or rent payments is even greater: those repaying a mortgage or paying rent are typically spending 25 more than they did in December 2012 (up from 282 to 307). This suggests the 8% of over-55s in rented accommodation have felt the effect of rising rents in the last six months, while the 19% who own their homes with a mortgage (including 27% of 55-64s) have not felt the benefit of consistent rate reductions in the mortgage market.

Expenses over the last 12 months:

May 2012 Clothing and footwear Debt repayment Furniture, appliances and pet care Leisure goods Motoring Personal goods and services 30.01 197.65 37.84 22.94 85.92 20.37 Dec 2012 28.03 177.58 29.35 18.95 73.97 19.95 May 2013 29.17 174.20 32.33 22.40 77.85 20.11 Change since Dec 2012 4% -2% 10% 18% 5% 1% Change since May 2012 -3% -12% -15% -2% -9% -1%

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Rising expenses over the last 12 months:

May 2012 Entertainment, recreation and holidays Fares and other travel costs Food Fuel and Light Housing (mortgage or rent) 83.46 46.97 182.82 106.57 290.95 Dec 2012 78.55 51.94 189.45 110.78 281.96 May 2013 85.98 52.20 196.83 109.27 307.11 Change since Dec 2012 9% 1% 4% -1% 9% Change since May 2012 3% 11% 8% 3% 6%

Looking back to the end of 2010, the average spend has increased in all but three categories. Each of those where spending has declined clothing and footwear, personal goods and services, postage, telephone calls and internet might be considered luxury expenses, whereas more essential items such as food and travel costs have risen considerably. By far the largest increases in expenditure since December 2010 have been seen in debt repayment (up 47%) and mortgage or rent payments (up 62%).

Expenditure growth table: changes since December 2010

December 2010 Housing (mortgage or rent) Debt repayment Food Fares and other travel costs Entertainment, recreation and holidays Fuel and Light Motoring Leisure goods such as sports equipment or CDs Eating out or take-aways Furniture, appliances and pet care Postage, telephone calls and internet connections Clothing and footwear Personal goods and services such as make-up and medicine 190 118 170 45 75 96 72 21 38 31 38 31 22 May 2013 307 174 197 52 86 109 78 22 39 32 37 29 20 Change +62% +47% +16% +16% +14% +14% +9% +5% +3% +3% -3% -6% -9%

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Assets
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Erosion of savings felt most keenly by those at retirement age Over-55s seek to compensate by improving monthly savings habits

Almost four in five over-55s (79%) own their own home in May 2013, either with or without a mortgage. Outright homeownership returned to the same level as in May 2010 (60%), having peaked at 64% twelve months ago. The percentage of homeowners with a mortgage did likewise, returning to 19% in May 2013 as in May 2010 having dipped to 17% in May last year. One difference to note is a slight increase in the percentage of over-55s in social housing, up from 10% in May 2012 to 12% this quarter: driven by an increase of two percentage points among both 55-64s and 64-75s. At 222,423, the value of the typical over-55s home has dropped by 5% since the Real Retirement Report series began, and by 6% in the last twelve months. However, with the Governments Help To Buy scheme including existing housing stock and widely predicted to have a positive effect on prices, homeowners in this age bracket may expect to see their properties increase in value as the scheme gathers pace.

Savings pots:
Savings pots have fluctuated among the over-55s in recent times as they adjust to inflation and rising living costs. Having peaked at 18,364 in September 2012, the typical savings pot has fallen by over a third (36%) to 11,763 in May 2013 25% down on the equivalent time last year. The most significant loss was experienced by the 65-74s, who have seen their savings pot halved over the last twelve months as they have dipped into their available funds. Those aged 55-64 have limited the impact of living costs on their cash reserves, helped no doubt by the fact that 58% of this group still receive wages or other earned income. The percentage of over-55s with no savings dropped to 14% in May 2013: down from 17% in May 2012 to the second lowest figure recorded since February 2010. Those with less than 500 saved also fell from 24% to 22% over the same period, suggesting that people who previously struggled to put money aside have managed to make some headway over the last year. In each case, all three age groups have benefited. However, the percentage of over-55s with less than 2,000 in savings crept up from 31% in May 2012 to 32% in May 2013, having been just 25% less than twelve months earlier in November 2011. The biggest shift over the last 12 months was among the retiring aged 65-74 with a rise of six percentage points from 23% to 29% in May 2013.

Proportion of over-55s with limited savings pots:

All Less than 500 saved May 2012 May 2013 May 2012 May 2013 24% 22% 31% 32% 55 64s 28% 26% 37% 35% 65 74s 19% 18% 23% 29% over-75s 21% 14% 29% 26%

Less than 2,000 saved

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Despite the increasing tendency to work past the old Default Retirement Age of 65, it seems more people are dipping into their savings pots when they first enter retirement: a trend that is likely to be influenced by greater levels of mortgage and credit card debt being carried into retirement. In contrast, the proportion with savings of more than 100,000 dropped to 17% having stood at 23% in September 2012. Monthly savings habits improved across the board to May 2013, with the typical over-55 putting aside just short of 50 (49.30) each month to boost their retirement nest egg slightly less than the 52.18 seen in September 2012, and 59% up from 31.05 in May 2012. The biggest improvement was among 55-64s, who have almost doubled the amount they save each month from 20.60 in May 2012 to 40.75 in May 2013. It offers encouragement that messages about the importance of saving for retirement are having an impact on this group. This is backed up by the falling number of over-55s who save nothing each month. Having stood at 41% in May 2011 and reached 42% in May 2012, the number fell visibly to 35% by May 2013, with all three age groups showing signs of improved savings habits. The trend suggests despite the economic climate the UKs over-55s have adjusted to the extent that increasing numbers are at least able to make some effort to save from month to month.

Percentage of over-55s saving nothing each month:

2011 2012

45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

All 55-64 65-74

2013

Over 75

Despite this, the 55-64s are still saving less money each month than the 65-74s and over-75s despite having the largest monthly income. This is doubtless the effect of having the largest typical expenditure of all three age groups.

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Monthly income, expenditure and savings habits across the three ages of retirement:
1,800 1,600 1,400 1,200 1,000 800 600 400 200 0
All 55-64 65-74 Over 75 Typical income Typical expenditure Typical monthly savings

The suggestion that the pre-retirees are becoming more in tune with the importance of saving for retirement is especially welcome at a time when the potential shortfall in late life finances is so widely debated. The dip in typical savings pots in the years leading up to retirement is a sign that few people are immune to the pressure of living costs and unexpected expenses. But making efforts to save and replenish these funds can help to provide greater financial stability in retirement.
Clive Bolton, managing director of Avivas at retirement business Second properties:
The property investment market has been buoyant recently and offered a reliable medium to long term return for landlords. However, May 2013 saw the lowest frequency of second properties among the over-55s since February 2010 with just 8% having a property investment, holiday home, time-share, inheritance or property occupied by another family member. In contrast to the fortunes of their main homes, the typical value of these second properties grew by 5% in the 12 months to May 2013 to 226,278. This trend may be influenced by the presence of hotspots for buy-to-let properties or holiday homes around the UK, where growing interest from investors has served to increase prices.

Contrasting fortunes of over-55s property investments:

Value of main home
240,000 230,000 220,000 210,000 200,000 190,000 180,000 2010 2011 2012 2013

Value of second home

Date

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Borrowing
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Unsecured debt up by 4% since May 2012 and 36% since May 2011 65-74s buck the trend towards increasing levels of mortgage debt

Whereas people might once have hoped to clear their mortgage debt before retirement, 19% of over-55s reported that they have a mortgage on their home in May 2013. For this group, the size of the typical mortgage rose marginally by 1% from 63,555 in May 2012 to 64,229: almost 10,000 more than in February 2010 (54,567). Those aged 55-64 and over-75 have been most affected by the rise. The 65-74s have at least managed to reduce their typical mortgage debt by 16,000 in the last twelve months from 64,024 in May 2012 to 48,547 in May 2013 potentially assisted by final salary payouts or drawing lump sums from their pension funds. However, the mean equity tied up in the homes of over-55s with mortgages fell by 9% to 158,194 in the year to May 2013. This suggests many people are struggling to pay off their mortgage debt as they approach and enter retirement. Possibly tempted by favourable remortgage deals, some may instead choose or feel compelled to borrow more against their existing properties to meet other financial demands.

Typical mortgage debt vs. typical housing equity for main properties

232,985 54,567
Q1 2010

186,252 50,402
Q2 2010

163,906 60,440
Q3 2010

172,141 64,511
Q4 2010

170,483 65,107
Q1 2011

169,936 61,370
Q2 2011

173,454 64,214
Q3 2011

179,337 66,622
Q4 2011

167,945 67,663
Q1 2012

172,919 63,555
Q2 2012

183,334 66,571
Q3 2012

174,956 59,541
Q4 2012

158,194 64,229
Q2 2013

Housing Equity Mortgage Debt

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Unsecured debt:
With clearing debt a secondary focus to meeting the cost of food and mortgage/rent payments, the level of unsecured debt grew by 4% among those over-55s who have it from 22,401 in May 2012 to 23,188 in May 2013. Looking further back, this represents an increase of 36% in debt levels over the last two years, with the greatest rise among preretirees. While unsecured debts have risen by 194 for 65-74s and by 1,011 for over-75s, todays 55-64s typically approach retirement with 6,752 more unsecured debt than in May 2011. Even so, the over-55s have managed to reduce their levels of indebtedness slightly since the turn of the year, achieving a 2% reduction from 23,676 in December 2012. The percentage of over-55s with debt also fell from 12% to 9% over the year to May 2013, indicating that debts have become increasingly concentrated. When it comes to forms of borrowing, the use of personal loans in May 2013 remained constant at 13% of over-55s including 15% of 55-64s while a number of other methods for securing credit waned in popularity.

Trends in the use of borrowing methods among over-55s:

December 2012 Credit Cards Personal Loans Hire Purchase Overdraft Loans from family/friends Doorstep lenders Storecards Any other informal borrowing Number of those with Debt 31% 15% 8% 14% 7% 5% 8% 5% 12% May 2013 32% 13% 5% 10% 2% 1% 5% 2% 9% Change +1% -2% -3% -4% -5% -4% -3% -3% -3%

Instead, more people turned to credit cards (32% vs. 31% in December 2012) with the biggest shift among the 65-74 age group. Just 27% of this group made use of credit cards in May 2012, but this number rose to 31% in May 2013. To a lesser extent, this pattern was mirrored by the over-75s, with 24% borrowing on credit cards compared with 23% last year. This could suggest a slight improvement in the availability of credit to older consumers, along with an increasing willingness to take advantage of this form of borrowing. Despite their apparent comfort with using credit cards, half as many over-75s (5%) have unsecured debts compared with 55-64s (10%): a ratio that has improved considerably since May 2012, when 10% of over-75s had unsecured debts compared with 13% of 55-64s.

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Over-55s Financial Fears Index

l l

Both short and long-term fears at record highs Squeezed savers worry about falling return on savings

Since the Real Retirement Report was launched in January 2010, it has tracked the views of over-55s about the key threats to their standard of living over the short-term (six months) and the long-term (five years). Using 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 months are the rising cost of living (88%) and unexpected expenses (52%). Both have risen since last quarter, from 80% and 41% respectively. Savers suffering from persistently low rates are increasingly fearful of falling returns on their savings (up from 28% in December 2012 to 37% in May 2013). Overall, taking into consideration all concerns over the next six months, over-55s are much more worried about the future (107 May 2013) than at the end of 2012 (86 December 2012). The Financial Fears Index is at its highest level since over-55s concerns were first tracked at the beginning of 2010, when a benchmark of 100 was established. While the over-55s seemed hopeful for positive change as 2013 approached, recent experience appears to have eroded this confidence and caused a significant rise in the Financial Fears Index.

Short-term fear index

110 European debt crisis starts Bank of England announces Quantitative Easing measures

Short-term fear index

less worried - more worried

100 90 80 70

Fears of a double dip recession UK unemployment increases Libyan uprising 2011 Spanish banking crisis 2012

Unemployment falls

Coalition government comes to power 2010

2013

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Long-term overview (five years):

The same two concerns hold true in the long-term as well as the short-term. Fears about the rising cost of living have risen by nine percentage points since December 2012 to 83%, while concerns over unexpected expenses have grown by six percentage points to 44%. The threat of a serious illness affecting themselves or their partner is also a significant long-term worry for over-55s, up from 22% at the end of 2012 to 30% in May 2013. As with the short-term, the long-term outlook is equally negative, with the Financial Fears Index rising from 88 in December 2012 to 102 in May 2013. This suggests over-55s are not expecting an improvement in economic conditions any time soon and are increasingly resigned to continued hardship.

Long-term fear index

110 European debt crisis starts Bank of England announces Quantitative Easing measures

Long-term fear index

Fears of a double dip recession Unemployment falls

less worried - more worried

100 90 80 70 60

UK unemployment increases

Libyan uprising Coalition government comes to power 2010 2011

Spanish banking crisis

Sustained pressure on incomes

2012

2013

Benefit worries:
Following significant changes to the benefits system announced in 2013s Budget, the loss of current government benefits is an increasingly prominent worry amongst over-55s. On a short-term basis, fears about this have risen from 11% in Q4 2012 to 14% in Q1 2013, with those aged 55-64 worrying about this the most (16%). Fears surrounding a rise in taxes have also increased, with a fifth (20%) of over-55s perceiving this as a threat to their financial stability in the next five years. Again, this fear is most prominent amongst the 55-64s, with 23% of this age group worrying about this on a long-term basis. Going forward, it will be interesting to see if factors such as the recent fall in inflation and the potential flow of a more positive news agenda for retirees, will have an impact on their longer-term concerns.

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Overview of the over-55s finances over the last 40 months

Income:
Although incomes are slightly down in May 2013 compared to December 2012 (1,412 vs. 1,444) incomes have risen from 1,239 since February 2010, representing a three year growth of 173. This is likely to be partly due to an increase in the number of over-55s still in employment: 37% still receive income in the form of wages, compared to 29% when the Real Retirement Report series first launched.

Fluctuating incomes among the over-55s

All 55-64 (Pre-retirees)
1,600 1,500

65-74 (Retiring) Over 75 (Long-term retired)

Income ()

1,400 1,300 1,200 1,100 1,000 900 2010 2011 2012 2013

Savings:
Average savings pots have increased only marginally since February 2010, rising from 11,590 to 11,763 in May 2013. This is a considerable fall (24 percentage points) since the end of 2012, when the over-55s had typical savings of 14,544. However, the proportion of those with no savings has reduced by 2% since the beginning of 2012 (16% in Q1 2010 versus 14% in Q1 2013), suggesting that the economic downturn has convinced consumers of the need for a healthy savings pot. The proportion of over-55s who save nothing each month has also fallen from 39% in February 2010 to 35% in May 2013. This is also a significant improvement since December 2012, when 42% did not save on a monthly basis. Those aged 75 and over are the most frequent savers, with 70% saving money each month this quarter compared to 58% at the start of 2010.

The percentage of over-55s who save nothing every month

All 55-64 (Pre-retirees) 65-74 (Retiring) Over 75 (Long-term retired)

60% 50% 40% 30% 20% 10% 0% 2010

2011

2012

2013

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House prices:
Despite expectations that the housing market will finally return to life in 2013 after a long period of negative or zero growth, there has been little benefit so far for the over-55s, who have seen the average value of their home fall from 232,985 in February 2010 to 222,423. The typical mortgage among those who have them has risen by almost 10,000 to 64,299 in May 2013, compared with 54,567 in February 2010, with an 8% rise since December 2012 when it was 59,541.

How shifting property values have impacted the over-55s

300,000 250,000 200,000 Price 150,000 100,000 50,000 0 Q1 Q2 2010 Q3 Q4 Q1 Q2 2011 Q3 Q4 Q1 Q2 2012 Q3 Q4 Q2 2013

All 55-64 (Pre-retirees)

65-74 (Retiring) Over 75 (Long-term retired)

Unsecured debt:
Debt has been tracked by the Real Retirement Report since January 2011. The amount owed by over-55s has risen steadily since then, increasing from 19,878 to 23,188 in May 2013. The over-75s are the only age group to have reduced their debt during this time, and even they have not seen a significant change (managing a reduction of just 1% from 8,457 at the start of 2011 to 8,372 in May 2013).

The rise and fall of unsecured debt among over-55

All 55-64 (Pre-retirees) 65-74 (Retiring) Over 75 (Long-term retired)

40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Q1 Q2 2011 Q3

Q4

Q1

Q2 2012

Q3

Q4

Q2 2013

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Regional overview

Average house price 1 2 3 4 5 6 7 8 9 10 11 East Anglia London East Midlands West Midlands North East North West Scotland South East South West Wales Yorkshire & Humberside UK 231,343 383,000 177,823 177,961 159,295 185,714 188,433 290,244 257,468 166,667 184,423 222,423

Average mortgage 48,438 60,227 57,500 95,833 62,500 63,750 42,763 70,313 88,889 50,000 52,976 64,229

Own house outright 61% 56% 56% 64% 57% 63% 57% 61% 58% 72% 55% 60%

Number of over-55s 1,746,000 1,628,000 1,341,000 1,607,000 782,000 2,029,000 1,531,000 2,525,000 1,727,000 958,000 1,511,000 17,385,000

Source: http://www.ons.gov.uk/ons/rel/pop-estimate/population-estimates-for-england-and-wales/mid-2011--2011-census-based-/index.html

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So what does this tell us?

The Spring 2013 edition of the Real Retirement Report looks in detail at the over-55s finances and asks how the goal of leaving an inheritance works in 2013 in an atmosphere of austerity and a strained economy. The findings lead us to propose a number of practical solutions: 1. C  onsider spreading your investments Given the instability of financial markets and the wider economy, seeking professional guidance from a regulated financial adviser can help to identify how best to manage your available assets in retirement and provide a return to support a comfortable lifestyle, as well as improving your options when it comes to planning to leave an inheritance. 2.  Take a long-term view Thinking ahead about how to cover the possibility of funding long-term care costs can help to avoid a situation where over-55s come to depend on family members to pay their bills. With the housing market and property prices expected to pick up in the months ahead, releasing housing equity can provide vital funds while still protecting an inheritance to leave behind. 3.  Consider alternative approaches to passing on wealth For those who have saved sufficiently for a comfortable retirement, the ability to release tax free cash from personal pension funds opens up a range of options for supporting family members financially during your retirement, rather than waiting to leave them an inheritance. 4.  Make efforts to maintain regular savings habits Carrying significant debt into your later years, whether in the form of a mortgage or unsecured borrowing, can serve to limit your financial freedom. As far as possible, include regular debt repayments alongside other expenditure to help ensure your debts do not become a burden during retirement

The idea of providing an inheritance is far from extinct, and something that many over-55s clearly aspire to. But for the current generation of retirees, there is clearly far more variety both in what they choose to leave and also the ways they choose to pass on their wealth. As with many aspects of retirement finances, prudent planning and careful management can really pay dividends helping you to manage living costs without feeling you have to sacrifice your own comfort to provide for family members.
Clive Bolton, managing director of Avivas at retirement business

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Methodology
The Real Retirement Report was designed and produced by Wriglesworth Research. As part of this research more than 16,686 UK consumers aged over 55 were interviewed between February 2010 and May 2013. 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 information sources include:
l  House

of Lords Select Committee on Public Service and Demographic Change, Report of Session 2012-13 Is the UK Ready for Ageing? March 2013 for National Statistics, Consumer Price Inflation, March 2013 April 2013 for National Statistics, Gross Domestic Product Preliminary Estimate, Q1 2013 April 2013 for National Statistics, Pension Trends Chapter 9: Pension Scheme Funding and Investment, 2013 Edition April 2013 for National Statistics, Pension Trends Chapter 10: Saving for retirement, 2013 Edition April 2013

l  Office l  Office l  Office l  Office l  HM

Treasury, Help to Buy: mortgage guarantee scheme outline March 2013

Technical notes
l 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 utter 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.

Over-55s worries index:

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 tom.wilson@aviva.co.uk

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106003423_RRRSPRING_13 05/2013 Aviva plc