People can expect their average income to drop by at least one-third on retirement, with retirees in London facing a fall of almost 50%, according to figures published by Partnership today.
The annuity provider's analysis of Revenue & Customs personal income data found that, whereas the average income while in work in 2010/11 was £19,000, for retirees it was £11,600 - a decline of 38.95%.
In London, while those in work could expect an average annual income of £23,100, on retirement this fell by 48.05% to £12,000. Other significant regional differences between employment income and retirement income were found in the East of England (down 40.2%) and the South East (down 39.51%). The smallest decline was seen in Wales, where incomes fell 33.71% on retirement.
Analysis of figures for countries showed significant drops in Buckinghamshire (down 45.37%), Cambridgeshire (down 44.39%) and Leicestershire (down 42.11%). The decline was smallest in Dorset (down 29.41%).
Partnership said its figures suggested people expecting to rely on their pension when they retire would be in for a 'nasty shock', and urged people to build up their savings and investments before they stopped working.
Andrew Megson, managing director of retirement at Partnership said: 'While people in retirement are likely to have fewer outgoings, it is still hard to imagine that anyone would not feel the pinch if they lost a third of their income over night. 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.
'In addition, many will have to stop working earlier than they intended because of health and lifestyle issues so may miss out on the opportunity to make additional financial provision and they are likely to find that the gap is even more profound.'
Megson urged people to shop around for an annuity and to find out if they can take advantage of enhanced or impaired products that offer a better annuity rate is a person has a pre-existing medical condition. 'While this is important for all those approaching retirement, it is particularly vital for those who live in more "affluent" areas as if their provider uses post code pricing they may find they are worse off.'
Tom McPhail, head of research at consultancy Hargreaves Lansdown, commented: 'Most people significantly underestimate both how long they will live in retirement and how much money they are going to need to live on.
'Typically, they start too late, save too little and expect too much. Linking projected post retirement income to current earnings makes sense as it helps to plan that transition from work to retirement. The other key question is when they can afford to retire. We anticipate that within a few years, retirement at 70 will become the norm unless people plan ahead.
'Everyone should take the time to find out how much is bring paid into their retirement savings, what kind of income it might produce and when they can expect to retire. A comfortable retirement won't happen by accident.'