Many Scots set to see income plunge on their retirement

The gap between the income the average Scot receives in their working life and the amount they’ll get in retirement is now 39.15 per cent, according to analysis by annuity provider Partnership. In some areas of the country, the income drop at retirement will be more than 46 per cent.

The figure, based on HM Revenue & Customs data, is the difference between average employment income in Scotland – £18,900 gross, including part-time work – and the typical £11,500 annual pension income that Scots receive. The gap is wider than the UK average and greater only in London and the south and east of England.

North of the Border, Aberdonians can expect the greatest fall in their regular  income when they end their working lives. The average worker in the Granite City will get a pension income 48.65 per cent below their current income, with people elsewhere in Aberdeenshire  facing a 46.63 per cent fall on average.

Those in North Lanarkshire (44.74 per cent drop) and Midlothian (43.59 per cent) can also expect a sharp fall in their income when they come to take their pension.

Hardest-hit will be those without additional savings and investments to fall back on in retirement, according to Andrew Megson, managing director of  retirement at Partnership.

“While people in retirement are likely to have fewer outgoings, it is still hard to imagine that anyone in Scotland would not feel the pinch if they lost a third of their income overnight.

“Even if their pension is topped up by income from savings and investments or part-time work, it is still likely to be quite a shock.”

That shock is compounded by the unrealistic expectations that many people have of their retirement lifestyles, other new figures suggest.

The average Scot believes they would need an annual net income of £22,995 to maintain a comfortable standard of living in retirement. Yet a 65-year-old retiring today and taking out an annuity would need a pension pot worth £509,000 to generate that income, according to wealth adviser Towry, though the analysis doesn’t factor in the state pension.

It found that just one in four people in Scotland aged over 55 is confident that they are on course for a financially comfortable retirement. Another 7 per cent are considering delaying their retirement because they can’t afford to stop working.

Bryan Innes, senior client partner at Towry in Aberdeen, said: “The sheer scale of how much you need to save in order to provide the standard of living you would like in retirement may well shock many people, especially in the current low interest rate environment.”

His comments come days after Scottish Widows warned of a “perfect storm” facing those nearing retirement. The average Scot is poised for a pension income less than half the amount they believe they need for the lifestyle they want in retirement, its annual pensions report found.

See inside today’s Smart Money for more on this and how to boost your  pension pot as you approach retirement.