PENSIONS WARNING: Retirement income has almost HALVED since credit crunch

A cocktail of a real-terms fall in wages, lower stock market returns and greatly reduced values of annuities has squeezed retirement income from £12,193 to £6,607 in the last decade.

And lower earnings mean lower pension contributions with those retiring in 2017 in our scenario paying in £5,179 less over ten years as a consequence. 

Coupled with less buoyant stock markets and plummeting annuity rates, the calculations show these people have a pot only three quarters the size of pre-crisis retirees

That is £139,110 compared to £180,106 and with only 46 per cent of the buying power when securing guaranteed incomes, found analysis by investment experts Fidelity International.

Economists modelled the outcomes of someone retiring today who in 2007 still had ten years of work and saving ahead of them. 

At the end of the period in the 2017, their pension pot was used to buy an annuity at current market rates. 

The results were then compared to the outcome achieved had they experienced the conditions from the preceding 10-year period, from 1997 to 2007.

Both scenarios earn £45,000 with a £50,000 pot of pension savings and contribute an ongoing 12 per cent of their salary to a pension

The results show that, by all measures, those retiring now have suffered compared to their counterparts retiring a decade previously.

On average, people retiring in 2007 earned wages which maintained their buying power, tracking 0.9 percentage points above Consumer Price Inflation (CPI). 

Meanwhile those in 2017 experienced the opposite with wage growth running at 1.7 per cent against CPI of 2.7 per cent.

That is a full percentage point under inflation, effectively making them poorer.

Ed Monk, associate director at personal investing for Fidelity International, said: “This all makes grim reading for the 2017 cohort of retirees yet it’s important not to abandon hope.

“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.

“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.”