Pensions hit by low annuity rates
People who retire this year will be £3,000 worse off than those who retired four years ago because factors such as the credit crunch, the recession and the eurozone crisis have pushed down annuity rates to a record low.
Annuity rates fell by eight per cent in 2011, which was the fourth consecutive year of decline.
According to Prudential’s Class of 2012 study, the average retirement income has fallen to £15,500 a year, a decline of 16 per cent, or £3,100, since 2008 and more than £1,000 a year less than last year.
Even when private pensions, company pensions and the state pension are all taken into account, it is estimated that five million pensioners now have an income of £10,000 or less.
Fewer than two in five people expect to be financially comfortable in their retirement.
The Government’s quantitative easing programme, which was designed to boost the economy by using £75 billion of new electronically created money to purchase gilts, is believed to have been a major contributory factor to the fall in annuity rates which are based on gilt rates.
The quantitative easing programme pushed up the price of gilts but reduced the amount of annual income they pay out.
Prudential’s study suggests that pensioners in London will have the highest pension, of £17,900 a year, while people in Yorkshire and Humberside will have to survive on just £12,800.
Prudential spokesperson Vince Smith-Hughes commented that the current economic climate has created a “perfect storm” for people preparing to retire, with pensions falling while the cost of living rises.
Yesterday, the Pension Protection Fund reported that the combined deficit of private sector pension schemes in the UK increased to a record high last year.
At the end of December 2011 the collective deficit for the UK’s 6,500 private sector final salary schemes was £255.2 billion, compared with £222 billion in November.
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