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Mind the gap - Future pensioners face over £66,000 savings shortfall


This information is intended for use by journalists and is correct at the time of publication. Customers wanting to view our current pensions range should visit our pensions pages.

  • Shopping around for annuities is key to maximising income from final pension pot
  • Virgin Money has launched a new annuity service to help people maximise their pension income

New research1 shows that many people are likely to be disappointed when they retire, as they would need on average to save an additional £66,549 into their pension fund order to provide the income that they expect in retirement. Virgin Money, in association with Partnership, asked 2,000 people what they hoped for (£17,278) and what they actually expected (£12,359) in terms of annual retirement income.

This research showed that despite expecting 29% less income than they would ideally like in retirement, the typical pension pot (£51,452) at annuitisation still fell short by £66,549 of being able to meet their more modest expected income levels. This stems both from a misunderstanding of how much the state pension will provide and from a shortfall in saving into private and occupational pension schemes (see table below).

Table One – Expected vs. Actual Income

Expected income1£12,359£11,894£11,225£13,872
Less State pension (2013/14)£5,728£5,728£5,728£5,728
Income needed from Pension Pot£6,631£6,166£5,497£8,144
Pension Pot needed to produce income2£118,000£111,000£98,000£145,000
Typical UK Pension Pot at Annuitisation3£51,452£34,043£45,723£55,326

Given this shortfall in pension savings, people entering retirement need to ensure they achieve the maximum return when purchasing an annuity. One of the best ways to maximise pension income is to shop around when buying an annuity – called choosing the Open Market Option. Doing this can boost annuity income by up to 20%, however only 50% of people buying an annuity choose the Open Market Option, with the other half settling for the rate offered by their pension provider.4

To help people make the most of their pension savings, Virgin Money has teamed up with annuity specialist Partnership to offer a Pensions Annuity Service. The simple, straightforward process provides customers with information about the options available for retirement income and annuity choice, using a carefully selected panel of annuity providers. The service is open to anyone looking for an annuity – not just those with a Virgin Money pension – and is available both online and over the telephone.

The potential benefits for customers of choosing the right annuity at the right price are significant. The National Association of Pension Funds and the Pensions Institute estimate5 that in aggregate pension scheme members lose between £500m and £1bn per annum in lifetime annuity income by not shopping around.

Anthony Mooney, Director - Investments and Protection at Virgin Money said "This research shows that, sadly, many people entering retirement are not going to enjoy the level of income they are expecting. Given this savings shortfall, getting the best possible return by choosing the right annuity is crucial, but the prospect of looking at different annuities can seem daunting."

"However, the potential benefits for pensioners from shopping around are huge, and that is why Virgin Money has teamed up with Partnership to provide a new service to provide all the information customers need, in a simple and straightforward way, to be able to make an informed choice. Buying an annuity is a once-in-a-lifetime decision which pensioners have to literally live with. The income is fixed for life and there are no second chances."

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  1. 2,000 people were surveyed during July 2013. This showed that, on average, those surveyed:
    • Hoped to have a retirement income of £17,278 per annum
    • Expected to have a retirement income of £12,293 per annum
  2. £118,000 is the approximate pension pot required to buy a standard annuity at the age of 65 which provides an annual income of £6,647 ( With state pension of £5,727.80 per annum, this would provide a total annual income of £12,359, which is the amount those surveyed expect to receive in retirement.
  3. Average pension pot from Association of British Insurers – Q3 2012. When consumers annuitize, they typically annuitize 1.5 pension pots according to Partnership Figures.
  4. Mintel, “Annuities – UK” Report, August 2012
  5. National Association of Pensions Funds / Pensions Institute, “Treating DC Scheme Members Fairly in Retirement” Report, February 2012

About Virgin Money

  • Virgin Money provides savings, mortgages, credit cards, pensions, investment and protection products to over four million customers
  • Virgin Money’s business ambition is to make “everyone better off” – this philosophy underpins our approach to business by offering good value to customers, treating employees well, making a positive contribution to society and delivering a profit to shareholders
  • Virgin is the official sponsor of the London Marathon, the biggest annual fundraising event in the world. Virgin Money leads the London Marathon sponsorship with the ambition to help runners raise £¼ billion over 5 years and will use its infrastructure, online capability and financial expertise to deliver that through Virgin Money Giving