Both our bankers and our inept politicians have destroyed the retirement plans of many hard-working savers. they have (successfully) ruined the pension and annuity plans of many retirees. I can’t imagine you’d be too happy if your income had just fallen by almost £15,000 per year. That’s what’s happened to Mr. & Mrs. C. and many like them.
Mr. C. is an accountant who’s recently retired, and started drawing his basic state pension. With this the most you will get is £87.30 a week (£4,540 a year) if you’re single and £139.60 a week (£7,259 a year) for a married couple. Depending on your contribution record, you might get much less. But it does have two pretty strong virtues. First, it is underpinned by the government, and it doesn’t rely on stock market performance. Secondly, it rises in line with prices (RPI), and should track earnings from 2012, which is even better for retirees. This couple worked hard for decades and so they also earned additional state pension benefits on top of their basic state pension. In total, he gets £9,000 and she gets £6,000 a year.
They have a combined occupational pension fund and private pension fund of around £100,000. They are wavering over whether to buy a pension annuity now, or keep the money invested in the hope of a stockmarket recovery. They are also wondering whether they should take a level or an index-linked option. After shopping around, they were given a quote for a level income of around £6,500 per year, or just £3,900 if they want it to rise in line with prices (RPI again). They both reckon that these annuity rates are pretty deplorable.
One of their biggest sources of anticipated retirement income was from dividends on the stocks and shares they own, and they were earning about £10,000 a year, mostly from banking dividends, but this has virtually dried up. They also hold around £100,000 in cash and savings bonds. A couple of years or so ago, they might have expected to earn up to 7% interest, now they are averaging around 2%. So instead of £7,000 per year, they are only getting £2,000, a fall of £5,000 per year. Hence the total £15,000 loss.
Indeed, plenty of retirees are worse off than this couple. But they are frustrated to have planned and saved for their retirement, only to see the rewards have been snatched away. Mr. C. is quietly boiling with rage. He has always planned properly for the future, denying himself holidays or that new car, and it must be hard to see it snatched away. The couple were really looking forward to not worrying about money for once in their lives, but that has now changed.
How disappointed should they feel? Should they check out annuity rates now? Or, maybe they should wait for a stockmarket recovery, if it happens? If they do get annuity quotes, what type should they opt for, level or RPI linked? It really isn’t easy for Mr. & Mrs. C., but then it isn’t easy for a lot of people, and some difficult decisions need to be taken.
