With 80% of UK pensioners relying on savings or share-based investment income to help fund day-to-day living expenses, this new research illustrates the shocking effects the base rate changes have had on pensioners' income.
In April 2008, the average pensioner was enjoying a monthly return of £158 from their savings if they kept the capital in an easy access base rate tracker account. This was in addition to their monthly state pension of £393 and accounted for 28.62% of their overall income. Those couples - who had managed to save double that of singletons - saw their monthly income boosted by £315 which accounted for 33.39% of their overall income.
However, as the base rate has fallen so has the amount of income over 65s can derive from their savings and the modest monthly increase in the state pension over this period (single: £20 and couple: £31) has done little to address this problem. Since April 2008, single pensioners have seen their savings income dwindles to just £16 per month (4% of income) and pensioner couples have seen it fall to £32 (5% of income).
As, it is unlikely that the base rate will climb to the relatively high levels experienced in July 2007 (5.75%) in the near future, pensioners need to consider carefully other sources of potential income. For homeowners, one of the areas that should be considered is equity release, according to SHIP.
These products can offer a real solution to this problem, SHIP believfes. For example - a single 75 year old woman with a £300,000.00 property could release up to £900 each month (£10,800 a year) for 15 years. This would be almost double her existing annual income (£5,118.46) and more than cover the shortfall due to falling savings returns.
Andrea Rozario, director general of SHIP commented: "Many pensioners have saved their whole lives with the expectation that they can use income from this capital and the state pension to fund a comfortable retirement. However, with the unprecedented movements of the UK base rate, thousands of pensioners are now contemplating how they will survive without up to a third of their income.
"One solution for those pensioners needing to boost their income is equity release. The over 60's can release some of the wealth tied up in their property and increase their retirement income substantially should they wish. We urge the Government to work with us in promoting this as a very real alternative for pensioners who are suffering as a result of the credit crisis."