More bad news about pension annuity rates. Individuals who retire this year are likely to be around £3,000 worse off than those individuals who retired four years ago because of various factors such as the ongoing credit crunch, the recession and the eurozone crisis we are witnessing – these factors have combined to push pension annuity rates to a record low. In fact, pension annuity rates actually fell by a massive 8% in 2011, which was the fourth year in a row we’ve seen declining rates.
According to Prudential’s recent Class of 2012 study, because of annuity rates the average retirement income people receive has fallen to just £15,500 a year, a decline of 16%, or £3,100 in cash, since 2008, and more than £1,000 per year less than 2011. Even when all pension schemes are taken into consideration – private, company, and state, it is still estimated that around 5 million retirees now have an annual income of £10,000 or less. Further, it’s estimated that less than two in five people expect to be what you might call financially comfortable in retirement.
The Government’s recent quantitative easing (QE) programme, which was actually designed to boost the UK economy by using a huge £75 billion of newly created money to buy gilts, is believed to have been a major factor to the fall in pension annuity rates which are largely based on gilt yields. The QE programme increased the price of gilts but reduced the amount of annual income – the yield – they pay out.
Prudential’s Class of 2012 study suggests that retirees in London will have the highest retirement income, of about £17,900 a year, while people living in Yorkshire and Humberside will have to get by on a much lower income of just £12,800. Mind you, those living in poorer parts of the UK can qualify for a higher pension annuity income because of postcode related annuity rates.
Prudential’s Vince Smith-Hughes suggests that the current economic climate has created what some are calling a perfect storm for people about to retire, with pension incomes falling while the cost of living continues to rise. Only yesterday, the Pension Protection Fund (PPF) reported that the overall deficit of private sector pension arrangements in the UK increased to a record high in 2011, and, at the end of December last year, the overall deficit for the UK’s 6,500 private sector final salary pension arrangements was a substantial £255.2 billion, compared with the lower figure of £222 billion in November.
