Perhaps ‘pensions timebomb’ is a misleading phrase, considering how gradually we are realising the full extent of the problems now faced by the retiring generation. A better description might be a pensions storm, which is slowly gathering strength as we move into the second decade of the millennium.
New data* shows yet again that pensions savers need to put aside every single pound available to them, and also seek quality independent financial advice on their pensions investment, in a climate that is looking increasingly bleak for future retirees.
Hard figures for pensions savers
A pensions saver who contributed £100 per month to their pension pot over 20 years would have achieved a retirement income of £9,000 per year, if they had retired in 2000.
The same pensioner retiring on 20 years’ savings today would have an annual income of just £2,500, a drop of 70% over the decade.
Fall in pensions and annuity rates
This radical slump is due to a fall in both the returns on pension investments, and in pension annuity rates.
A pensions annuity is what you purchase with your pension savings, to convert them into an income for life. The annuity provider then makes a monthly payment which, for most, is the keystone of their income in retirement. The level of this payment is based on the annuity rate.
A male pensioner in 2000 was retiring with an average pension pot of £103,000. Today, that has shrunk to just £40,000.
The pensioner in 2000 could obtain a far better pensions annuity rate of 8.6% as well. The average today is 6.2%.
*Source: financial researcher Moneyfacts
