Based on analysis of household expenditure and average life expectancy data, MGM Advantage estimates that someone retiring this year could need an average annual household income of £25,916.27 for the duration of their retirement if they lived in Cardiff, £8,939 less than London.
The main reason for this difference is the fact that MGM Advantage research shows that the average cost of living in London is 18.49% higher than for the country as a whole, whereas Wales is 11.53% below.
Of the major cities in the UK, Hull and Bradford were the next cheapest. Southampton and Belfast were the next most expensive after London.
On top of the large amount of money people need in retirement, MGM Advantage is also warning that retirement income levels are falling. This is because of a significant switch from defined benefit to defined contribution pensions; where contributions are smaller, people living longer and regulatory changes. Indeed, the introduction of Solvency II – new European legislation which comes into force in 2012 – will require insurers to increase the capital they hold and this could lead to a reduction in annuity rates of up to 9%.
Aston Goodey, sales and marketing director, MGM Advantage commented: “Retirement should consist of some of the happiest days of your life, but for many, financial constraints can lead to stress and frustration because they can’t afford to do some of the things they want to do.
“We estimate that in the next five to ten years, £135 billion of pension funds will mature and those people who own this need to make sure that they maximise its potential. This includes shopping around for the best annuity for them as this could increase their income by over 30%. They should also consider an asset-backed annuity, which gives people the potential to receive a greater income than through a conventional annuity.”