Pension pots have shrunk by £3,000 in four years as big falls on the stock market and record low annuity rates 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.’
