Despite saving the same amount of money into their pensions, older employees now face the dire prospect of getting about half the income they would have received 15 years ago, research reveals today. And this comes on top of the collapse in final salary pension schemes, with millions locked out of the best type of retirement provision.
Experts said employees who want to retire are facing a nightmare which no previous generation has had to cope with.
The plunge in pension payouts is because annuity rates have nose-dived. Annuities offer a guaranteed monthly income to those who have saved into a pension pot, but over the last month several major investment firms, such as Aegon, Aviva and Legal & General, have started to cut their annuity rates. Their rivals are almost certain to follow and experts predict that rates will fall even lower over the coming months. Around 50,000 people a year buy an annuity, with up to £20billion of their hard-earned cash ploughed into the investment products.
Today's research, from the financial information firm Moneyfacts, looked at the annuity which a £10,000 pension pot can buy. In 1995, a 65-year-old man buying an annuity would have received an average annual payout of £1,111. Today, a man of the same age with the same pension pot would get just £606 a year, a drop of 5 per cent which shows how rapidly annuity rates have plummeted. Just 12 months ago, the same fund would have bought a pension of £647 a year.
The average pension pot is about £30,000. For a man aged 65, this would have resulted in an annuity worth around £3,300 a year in 1995, compared with just £1,800 today.
The report's author said the findings would be 'a rude awakening for many'. The victims will be 'baby-boomers', born after the end of the Second World War who are now starting to retire. After a lifetime of saving into a pension, many will be shocked and disappointed by the income that they will get from it, and feel that they are being forced into staying at work.
Experts said employees who want to retire are facing a nightmare which no previous generation has had to cope with.
The plunge in pension payouts is because annuity rates have nose-dived. Annuities offer a guaranteed monthly income to those who have saved into a pension pot, but over the last month several major investment firms, such as Aegon, Aviva and Legal & General, have started to cut their annuity rates. Their rivals are almost certain to follow and experts predict that rates will fall even lower over the coming months. Around 50,000 people a year buy an annuity, with up to £20billion of their hard-earned cash ploughed into the investment products.
Today's research, from the financial information firm Moneyfacts, looked at the annuity which a £10,000 pension pot can buy. In 1995, a 65-year-old man buying an annuity would have received an average annual payout of £1,111. Today, a man of the same age with the same pension pot would get just £606 a year, a drop of 5 per cent which shows how rapidly annuity rates have plummeted. Just 12 months ago, the same fund would have bought a pension of £647 a year.
The average pension pot is about £30,000. For a man aged 65, this would have resulted in an annuity worth around £3,300 a year in 1995, compared with just £1,800 today.
The report's author said the findings would be 'a rude awakening for many'. The victims will be 'baby-boomers', born after the end of the Second World War who are now starting to retire. After a lifetime of saving into a pension, many will be shocked and disappointed by the income that they will get from it, and feel that they are being forced into staying at work.
PAs are encouraged to check that their bosses best interest is being preserved by good pension management; find out who does it and that they are on top of the rapidly declining marketplace.
Gareth, APA
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