UK Average Retirement Incomes 7.9% Lower than a Year Ago

By: MoneyFacts

New research by Investment Life & Pensions Moneyfacts has revealed that today’s retirees, who choose to take an income via an annuity, are set to receive annual retirement incomes that are 7.9% lower than those received by retirees last year. It also warns that current pension contribution levels are insufficient to bring retirement incomes back to the levels enjoyed by retirees 15 years ago.

The analysis looked into the impact of the changing value of pension pots and fluctuating annuity rates on retirement incomes. The figures were based on an individual contributing £100 gross per month into an average personal pension fund over a 20-year period and retiring at the age of 65 with a standard level without guarantee annuity.

Table 1 shows that someone who had paid £100 gross per month into an average personal pension fund for the preceding 20 years would have built up a pension fund of £42,440 if they retired now, compared with £44,089 if they had retired a year ago. When the fall in annuity rates over the last year is also factored in, this equates to an average annual annuity income of £2,109 today compared with £2,292 a year ago. This latest figure is approaching the all-time low of £2,065 recorded in September 2012 and represents a fall of 72.7% on the average retirement income of £7,748 recorded 15 years ago.

Table 1: Average retirement income September 2000 - September 2015

Pension fund figures as at 1 September (based on a gross monthly premium of £100) and based on the average of all available pension funds. Source: Lipper. Annuity figures based on a male annuitant aged 65 buying a standard ‘level without guarantee’ annuity. Source: Moneyfacts.

Richard Eagling, Editor of Investment Life & Pensions Moneyfacts, said: "Private pension provision is still being neglected, meaning that there is a real danger that tomorrow’s pensioners will end up in poverty. Dreams of a comfortable retirement could easily be shattered unless individuals can either make up the pension shortfall through greater contributions or accept that they may have to delay their retirement. It is vital to increase awareness not only of pension options, but also the potential retirement income outcomes as too many people have outdated and unrealistic expectations as to what they will eventually receive.”

The analysis also suggests that contributions into personal pensions have not risen quickly enough to compensate for lower investment returns and falling annuity rates. Although the average annual contribution per person to a personal pension has more than doubled since 2001/2 from £1,720 to £3,510 in 2012/13 (source: HMRC) this is still in danger of leaving pension savers with retirement incomes that are far lower than those enjoyed by their predecessors 15 years ago.

Someone saving £300 per month (£3,600 per annum) into a personal pension over the last 20 years and retiring now would still only have produced an average retirement income of £6,327, 18.3% lower than the average in 2000 even though the same individual had only been saving £100 per month into their personal pension (see Table 2).

Table 2: Average retirement income September 2000 - September 2015

Pension fund figures as at 1 September (based on a gross monthly premiums of £100 and £300) and based on the average of all available pension funds. Source: Lipper. Annuity figures based on a male annuitant aged 65 buying a standard ‘level without guarantee’ annuity. Source: Moneyfacts.

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