Pension incomes have HALVED in just a decade
Pension incomes are being squeezed due to real-terms fall in wages, lower market returns and lower returns on annuities that pay a guaranteed income for life in the decade after the credit crunch.
The analysis by Fidelity International revealed that people retiring today must cope with a pension income which is 46% lower than levels seen 10 years ago.
It modelled the outcomes of someone retiring today who in 2007 still had ten years of work and saving ahead of them. At the end of that period in 2017, their pension pot was used to buy an annuity at current market rates. These results were then compared to the figures achieved in the preceding 10-year period from 1997 to 2007.
The results show that those retiring now have suffered significantly compared to their counterparts retiring a decade previously.
On average, people retiring in 2007 earned wages which maintained their buying power, tracking 0.9 percentage points above Consumer Price Inflation (CPI). Meanwhile those in 2017 experienced the opposite with wage growth running at 1.7% against CPI of 2.7% – a full percentage point under inflation, effectively making them poorer, Fidelity said.
Lower earnings mean lower pension contributions with those retiring in 2017 paying in around £5,179 less over ten years as a consequence. Its calculations showed these people have a pot only three quarters the size of pre-crisis retirees – £139,110 vs £180,106 – and with only 46% of the buying power when securing guaranteed income.
Ed Monk, associate director at personal investing for Fidelity International, said: “This all makes grim reading for the 2017 cohort of retirees yet it’s important not to abandon hope. In the period since the crisis the pension freedoms reforms have freed many more people to access their pension pot using drawdown instead of an annuity.
“This comes with greater risk but at least provides an alternative to being locked into low paying annuities and gives you greater flexibility over how you manage your income. For those still with some years to go before they retire, there’s a chance to make more of the time available left to save.”
Monk added that savers should take advantage of any employer contributions on offer , as well as ensuring that the pension money is invested to take a level of risk individual savers are comfortable with, but that will give the saver a chance of decent growth.