Millions hit as pensions shrink by £3,000 in just four years
due to record low annuity rates
Workers who retire this year can expect their pensions to
be £3,000 less than they would have been in 2008.
Big falls on the stock- market and record low annuity
rates - which determine the annual income savers can buy with
their pension pots - have wreaked havoc with the retirement
plans of millions.
A report from the Prudential said those retiring this year
are banking on an average annual pension of £15,500 - £3,000 a year
less than those who retired in 2008 and more than £1,000 a year
less than last year.
Vince Smith-Hughes, Prudential's retirement income expert,
said: 'The current economic climate has created the perfect storm
for people in the run-up to retirement.
'The impact of the credit crunch, banking crisis,
recession, and concerns over the eurozone has been reflected in the
fact that expected retirement income levels have hit a
five-year-low.'
The report comes as strikes over pension cuts threaten to
spill over from the public to the private sector.
Yesterday the Unite union warned industrial action could
be taken in protest at 'attacks' on pensions in private firms, as
staff at Unilever prepare for a series of 24-hour strikes over the
closure of the firm's final salary scheme.
As millions feel the pinch from soaring food and heating
bills, one in five pensioners who retire this year will scrape by
on less than £10,000.
There are already five million pensioners surviving on an
income of £10,000 or less. This figure includes the state pension -
worth £5,300 a year - as well as private and company
schemes.
Experts argue that much of the damage to pensions has been
caused by the Government's attempt to breathe life back into the
economy.
The Bank of England's decision in the autumn to
print £75billion in its latest round of quantitative easing
prompted insurance firms to slash their annuity rates to record
lows.
This is because the value of annuities - which provide an
income for life from pension pots - are based on government bonds
called gilts.
The Bank of England uses the money it creates from
quantitative easing to buy gilts.
This pushes up their price, but reduces the amount of
annual income they pay out.
Ros Altmann, director general of over-50s group Saga,
said: 'This latest report shows the terrible and permanent damage
this temporary boost to the economy has done to pensioners.
'Savers retiring today are being locked into a lower
pension for life because of the drop in annuity rates.'
The report from the Pru also shows how widely incomes vary
across the country. Those in Yorkshire and Humberside expect an
average pension of £12,800, less than half the average salary for
UK workers.
This compares with £17,900 in London, £17,100 in Wales and
£17,200 in the South-East.
Men are more optimistic about their retirement than women,
with 45 per cent confident they will be financially comfortable
compared with only 31 per cent of women.
Neil Duncan-Jordan of the National Pensioners' Convention
said: 'It's a terrible time to be retiring.
'When you add in low savings rates, rising bills and a
miserable state pension, it's no wonder pensioners are struggling
to make ends meet.'