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MILLIONS of Britons are facing severe hardship in retirement after shocking new figures revealed that pension funds have lost up to 75 per cent of their value. Plus millions must now be prepared to work longer and save more to enjoy a comfortable retirement. For the full story that appeared in the Daily Express recently, please
Workers who have paid into private pensions face retiring on just a fraction of the amount they would have received 10 years ago. And, researchers warned last night, the situation is getting worse. Experts branded the situation "stark and shocking". They said the only people who could now have any certainty about their pensions were public sector workers with Government-protected schemes. And they warned that millions must now be prepared to work longer and save more to enjoy a comfortable retirement.
Key factors in the crisis are falling share prices, reduced interest rates and lower inflation; according to a report by financial data firm Moneyfacts. People have been further hit by the fact that annuity pensioners are facing a longer retirement with pension pots half the size of those fortunate enough to have retired a decade ago," said Richard Eagling of Moneyfacts.
"The figures show that an individual with a personal pension retiring today could be more than 50 per cent worse off than someone who made the same premium contributions but reached retirement 10 years ago."Moneyfacts said that a man retiring at 65 in July 1996 after paying in £500 a year to his with-profits pension plan for 20 years, would have built up savings worth about £60,000. The same man retiring in July this year would have only about £26,000 – a 58 per cent cut.
Pension advisers said a 50 per cent fall in investment returns meant a 75 per cent fall in income for savers when combined with falling annuity rates.Financial planner Jonathan Davis said: "People need to get real. They are living beyond their means and not saving enough. It’s not what people want to hear but they must save more and pay down their debt. "A decade ago a high proportion of the population were in final salary schemes. Now these schemes have been abolished and those remaining are in deficits to the tune of billions of pounds. When you add that situation to the amount of debt people have, in the words of Private Fraser in Dad’s Army, ‘We’re all doomed’. I’m not being frivolous. It’s a very bleak picture and it’s going to get worse."
According to Moneyfacts, the value of a 25-year pension policy has dropped by 53 per cent from about £120,200 in 1996 to £55,900. Falling annuity rates mean that a £100,000 pension pot would produce an income of just £6,860 a year if bought now, compared to nearly £11,400 in 1996. Describing the Moneyfacts figures as "quite stark", pension expert and former adviser to No10 Dr Ros Altmann said: "The major problem is that the Government’s pensions policy is relying on private pensions to get people into a position where they can afford a decent retirement, but the costs and risks of private provision are just too high. "You don’t know how much you’re going to get so you cannot plan. If you’re in a public sector pension scheme you should be OK. You know what you will get and it’s underwritten by the taxpayer."
Even final salary schemes were not safe, added Dr Altmann, who is campaigning for justice for thousands of people who lost their savings when companies folded. While investment rates showed signs of improvement, there was little likelihood of a significant upturn in annuity rates, he said. He added that Gordon Brown’s £5billion a year tax raid on pension funds was also a contributory factor.
Tory shadow work and pensions spokesman Philip Hammond seized on that issue, commenting: "At a time when life expectancy is increasing and investment returns are falling, Gordon Brown’s response is to continue his annual tax raid on pension funds. This will have played a big part in lowering returns." A spokesman for the Work and Pensions Department said: "It is true that no saving is without some element of risk, but most people most of the time will find themselves better off for having saved for their retirement. The reforms we proposed in our Pensions White Paper will give people a more generous pro-vision from the state which will give them a good platform for private saving."The system of personal accounts we have proposed will have lower charges and compulsory employer contributions which could mean people keeping up to 25 per cent more of their private savings."
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