People who are retiring now are facing a pension income that is 46% lower than the amount they would have received prior to the credit crunch, according to new analysis by Fidelity International.
The figures reflect the fall in wages, lower market returns, and reduced returns on annuities that pay retirement income, over the last decade.
Fidelity compared figures of two situations - someone retiring today who in 2007 still had 10 years of work and saving ahead of them; and the outcome achieved if that same person had experienced the conditions from the preceding 10-year period, 1997-2007.
The research showed that, on average, people retiring in 2007 earned wages that maintained their buying power, tracking 0.9 percentage points above Consumer Price Inflation (CPI).
Those in 2017 experienced the opposite; with wage growth running at 1.7% against CPI of 2.7% - a full percentage point under inflation, effectively making them poorer.
Consequently, lower earnings mean lower pension contributions with those retiring in 2017 paying in £5,179 less over ten years, Fidelity said.
Ed Monk, associate director at personal investing for Fidelity International said the results made for "grim reading" for the 2017 cohort of retirees – but emphasised that people should remain positive.
"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," he said.
"This comes with greater risk, but at least provides an alternative to being locked into low paying annuities and gives you greater flexibility over how you manage your income.
"For those still with some years to go before they retire, there's a chance to make more of the time available left to save."
"Maximising contributions to take advantage of any employer contributions on offer, as well as the help available from tax relief, makes sense, as does ensuring your pension money is invested to take a level of risk that you're comfortable with, but that will give you a chance of decent growth."
First published 25.08.2017
Lindsay.sharman@wilmingtonplc.com
