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News: State pension provision shrinks

State benefits, as a proportion of average pensioner income, will be overtaken by personal provisions next year and the state will no longer provide the majority of retirement income. A Pru-Datamonitor report shows that as recently as 1979, state benefits accounted for nearly two thirds (61p in the pound) of the average pensioner income.

In 2003/4 state benefits accounted for 51 pence in every pensioner pound but by 2013/4 they will account for just 44 pence in every pensioner pound. Occupational pensions and personal retirement planning will become the main source of pension funding in the future As state benefits make up a smaller proportion of the average pensioner pound in the future, other sources of retirement income will grow. Increasingly people are looking at a retirement plan, rather than just a pension.

Such a retirement plan can encompass many different income sources. In the immediate future, a pension - either occupational or private - is likely to form the bedrock of most peoples' retirement plans, but in the future other forms of saving will also come to the fore. These other forms of saving include investments and property. People may even plan to work longer, past the normal retirement age, to generate the extra income they need.

Occupational pension schemes now account for 27 pence in every pensioner pound. This is unlikely to change significantly over the next ten years. However, the characteristics of occupational pensions will continue to evolve as final salary schemes continue to close and are replaced by defined contribution schemes.

In 2003/4 private pensions accounted for just 3 pence in every pound. By 2013/4 it is forecast to increase to 4.5 pence in every pound. Investments too will increase from 9 pence in 2003/4 to 10.5 pence in every pound in 2013/4.

People will increasingly turn to other income sources - including property. In 2003/4, other income sources accounted for just 1 penny in every pound, but by 2013/4 this is estimated to have trebled to 3 pence in every pound. People may also be faced with the need to go back to work post-retirement. In retirement earnings are forecast to increase from 9 pence in every pound in 2003/4 to 11 pence in every pound in 2013/14.

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