Today’s retirees, who choose to take an income via an annuity, are set to receive annual retirement incomes that are 7.9 per cent lower than those received by retirees last year.
New research from Moneyfacts warned that current pension contribution levels are insufficient to bring retirement incomes back to the levels enjoyed by retirees 15 years ago.
The analysis looked into the impact of the changing value of pension pots and fluctuating annuity rates on retirement incomes - based on an individual contributing £100 gross per month into an average personal pension fund over a 20-year period and retiring at the age of 65 with a standard level, without guarantee, annuity.
It found that someone who had paid £100 gross per month into an average personal pension fund for the preceding 20 years would have built up a pension fund of £42,440 if they retired now, compared with £44,089 if they had retired a year ago.
When the fall in annuity rates over the last year are also factored in, this equates to an average annual annuity income of £2,109 today, compared with £2,292 a year ago.
This latest figure is approaching the all-time low of £2,065 recorded in September 2012 and represents a fall of 72.7 per cent on the average retirement income of £7,748 recorded 15 years ago.
Richard Eagling, editor of Moneyfacts, commented that private pension provision is still being neglected, meaning that there is a real danger that tomorrow’s pensioners will end up in poverty.
“It is vital to increase awareness not only of pension options, but also the potential retirement income outcomes as too many people have outdated and unrealistic expectations as to what they will eventually receive.”
The analysis also suggested that contributions into personal pensions have not risen quickly enough to compensate for lower investment returns and falling annuity rates.
Although the average annual contribution per person to a personal pension has more than doubled since 2001/2 from £1,720 to £3,510 in 2012/13, according to HM Revenue and Customs, this is still in danger of leaving pension savers with retirement incomes that are far lower than their predecessors.
Someone saving £300 per month (£3,600 per annum) into a personal pension over the last 20 years and retiring now would still only have produced an average retirement income of £6,327, 18.3 per cent lower than the average in 2000, even though the same individual had only been saving £100 per month into their personal pension
Chris Daems, director at Cervello Financial Planning, told FTAdviser: “These statistics highlight how important it is to work hand in hand with our clients on an ongoing basis due to the impact external factors have had and will continue to have on our clients financial needs in retirement.”
peter.walker@ft.com
