Retirement incomes plummet over last 10 years: Stuttering wage growth and low annuity rates blamed

 
Oliver Gill
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A perfect storm of three problems has driven real retirement incomes lower (Source: Getty)

Today’s retirees are facing the prospect of surviving on half the income they would have expected 10 years ago.

A combination of a fall in inflation-adjusted wages, lower market returns, and plummeting annuity rates mean today’s pensioners must manage on 46 per cent lower income, according to Fidelity.

In an illustrative scenario Fidelity calculated pension pots over the 10 years to 2017 would be £139,110, compared with £180,106 in the decade to 2007.

Low annuity rates have led to a number of providers, such as LV and Prudential, exiting the market place over recent years.

Read more: Huzzah! Some good news on annuities...

Fidelity's illustrative example

1997-2007

2007-2017

Salary at start of period:

£45,000

£45,000

Salary at end of period:

£63,242

£53,220

Annualised CPI inflation in period:

2.60pc

2.70pc

Pension pot at start of period:

£50,000

£50,000

Pension pot and end of period:

£180,106

£139,110

Income from average annuity based on pension pot:

£12,193

£6,607

However, the latest research from Aon Hewitt indicates annuity rates may have bottomed out of late, with prices edging up 0.5 per cent year-on-year. Aon said a high level of competition, as well as increased confidence in the providers investing in long-term illiquid assets, explained the rise.

Fidelity associate director Ed Monk said while the halving of pensioner incomes made for “grim reading”, he added: “It’s important not to abandon hope.”

“In the period since the crisis the pension freedoms reforms have freed many more people to access their pension pot using drawdown instead of an annuity,” added Monk.

Read more: LV is next to quit the annuity market

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