Partner Article

Pensions a third less than three years ago

Pension incomes are around 30% less than they were three years ago, according to new research.

PwC calculations show that a pension pot of £300,000 would now only convert into a pension income of £18,500 per annum, whereas three months ago the same lump sum would’ve provided £19,500. Three years ago, it would have generated nearly £22,500 per year.

Richard Podd, pension practice director at PwC North East believes this will put people looking to retire in the next few years into an increasingly difficult position, as by deferring an annuity until process improve, they would be stuck with no income.

He commented: “This huge reduction is due to a double-whammy of higher annuity costs and a smaller pension pot where investments hadn’t switched out of equities before retirement.

“This could happen if someone finds themselves out of work unexpectedly – not an uncommon scenario in the current economic climate.”

Increases in annuity prices make it more important than ever for people nearing retirement to be given the best deal. Changes are soon to be made to the ABI’s annuity rules, which will encourage people to shop around rather than simply purchasing insurance from their incumbent insurer.

Richard added: “The first generation of people on defined contribution is starting to come through.

“Luckily many will this time have alternative pensions as they have only been in a defined contribution scheme for perhaps a decade – but they same won’t be true for future generations.

“A number of employers and trustees are recognizing this and taking serious steps to advance warn members approaching retirement of the risks they face and the options they have to protect and maximize their income.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .