Blackrock’s Cost of Retirement Income (CoRI®) index is designed to provide individuals aged 55 to 74 with an estimate of what it will cost today for each pound of annual income required in retirement. It uses the same principles in calculating the liabilities of Defined Benefit Scheme and applies them to people with Defined Contribution savings.
The outcome being that, whereas members of Defined Benefit schemes are seeing their Transfer Values increase due to low Gilt yields, the cost of purchasing a guaranteed income has become considerably more expensive.
For example, according to Blackrock’s CoRI® index, a 55-year-old looking to retire in 10 years’ time with an inflation linked income of £20,000 per annum, would now need a pot of £550,000 to provide this income. This is an increase of 42% over the figure at a similar time last year!
So, does this mean it is time to panic that retirement is moving further and further away due to retirement income being so expensive? The answer is no. There are always options and understanding these options is where financial planning comes into its own. By modelling different scenarios, the ramifications of the different options can be explored and the optimal solution can be found. Whilst this may mean working on for a few years, it might also mean that utilising pension drawdown or drawing from a different pot might provide a more attractive solution. We find that some clients have more options than they realise. Planning is key to finding the right solution and avoiding needless anxiety.