Financial Unrest Hits Pension Incomes ‘by £1,300’

Sep 27, 2011   //   by Daniel Morris   //   Breaking News  //  Comments Off on Financial Unrest Hits Pension Incomes ‘by £1,300’

Those with defined contribution pension schemes look like they have lost an average of £1,300 in potential retirement income over the last six months, a firm has said.

The statisticians at Alexander Forbes, who calculated these figures, have gone on to blame the drop on falling share values and annuity rates.

This is because, between the beginning of March and the start of September the FTSE 100 share index has 9 per cent to only 5418, and has since fallen a further 4 per cent to 5066 as of last Friday (23rd September).

Alan Carey, of Alexander Forbes, went on to say “the last six months of 2011 have been dire for defined contribution pension savers,” adding that “a combination of falling growth asset values, reduced bond yields and ever increasing longevity has further reduced the value of workers’ pension savings.”

Alexander Forbes have taken into account, not only those that are at the age of retirement, but also the effect that the recent financial unrest is certain to have on the prospects of those young investors who still have several years before they can start to convert their savings into an annual pension.

The firm have stated that the average defined contribution saver would be aged 41.5 years old, putting aside between 8 and 12 per cent of their salary (including their employers’ contributions), and earning a rate of return of 1.5 per cent above inflation.

Annuity broker, Billy Burrows has pointed out that the falling bond yields have sharply undermined annuity rates – the annual income someone can expect to buy with their collection of pension savings.

Mr Burrows stated that “Annuity rates seem to have bottomed out but as the benchmark 15 year gilt yield has fallen a massive 90 basis points from 3.75 per cent on 22 July 2011 to 2.85 per cent today, further cuts are not out of the question.”

Last week Hargreaves Lansdown calculated that the combined effect of the falling annuity rates was that a 65 year old man with a £100,000 pension pit would find it bought £926 less in annual retirement income than at the start of the year.

This has led the Association of British Insurers (ABI) to announce steps to encourage consumers to shop around for an annuity, as opposed to just accepting the deal on offer from the firm with which they are used to investing with.

The ABI have said that a new code of conduct for its members would help to stop them sending application forms to customers who were saving in their pension policies.

“This will stop consumers from automatically rolling over their pension savings to an annuity with their current provider,” a spokesperson for the ABI said.

They continued to say, “The new code will also ensure that customers receive all the information they need to shop around in one easily accessible place.”

The AI have announced that about one third of all retires do not shop around for an annuity with their pension pot, and are therefore depriving themselves of a potentially higher income after retirement.

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