Your pension will be £1,750 a year less
Private sector workers without gold-plated final salary pensions can expect to receive £145 less a month in retirement than was projected just two years ago.
Private sector workers without gold-plated final salary pensions can expect to receive £145 less a month in retirement than was projected just two years ago.
12:37PM GMT 12 Dec 2011
Volatile stock markets, low contribution rates and increasing annuity prices will result in a longer working life or less money in retirement.
According to Mercers, the actuarial consultancy, a 50 year-old can currently expect to receive £145 less a month, or £1,740 a year, in retirement income than was projected in 2009. A person in their thirties will be around £100 a month worse off.
The calculations showed that annuity prices – which dictate your pension income – have increased by an average of 20pc since 2009, hampering members' chances of obtaining a good retirement income.
This dramatic increase has meant that someone with a defined contribution pension pot of £200,000 at age 65 can now expect to get an annuity income of around only £5,800 a year, compared with £7,000 a year in 2009. Mercer said that a person nearing retirement might need to work for over three years longer in order to retire on the same income that they expected based on conditions back in 2009.
The decline in prospective pension values has been accentuated by a drop in contribution levels – employees are paying less in than they used to (an average of 4.2pc), while employers have frozen contribution rates, at an average of 7.2pc of a worker's salary, over the past year.
Tony Pugh of Mercer said: "When considering the financial and regulatory pressures pension schemes are facing, the stagnation in employer contributions doesn't come as a big surprise. With a double-dip recession looming things are likely to get worse before they get better.
"We expect, however, that rates will trend upwards again over the long term, as employers start to recognise that lowering contributions to defined contribution schemes will change the workforce profile as a result of older employees having to work longer. Equally, employee pressure to increase contributions is likely to have an impact.
He added: "The impact on individual members is significant, especially for those about to retire. Members should keep a close eye on how their pension pot is invested and make sure to shop around for annuities to get the best out of their retirement savings.
"Those eligible are likely to increasingly use drawdown options, but these are not without risk as investment values could fall."