MILLIONS FACE PENSION CRISIS!
MILLIONS of new pensioners were warned this week that they face a retirement of poverty after weeks of slashed annual payouts.
Pension companies have cut rates offered on their guaranteed annuity incomes 24 times since the start of summer.
Standard Life is the latest to do so, lopping five per cent off the rate offered to the newly-retired and those approaching retirement.
And male pensioners will suffer an extra blow later this year with the introduction of the EU’s new “gender directive” which will further force down annuities for men.
Craig Palfrey, founding partner of independent financial advisers Penguin Wealth, said: “Annuities are in meltdown. We’re way beyond red alert. They have been coming down relentlessly and Standard Life’s decision to take a sword to rates is just the latest example.
Twenty years ago a £100,000 pension fund would have guaranteed an income of £15,640 a year for life for a 65-year-old man. Now it is just £5,140 a year.
And the crisis decimating pensions is set to continue for months, perhaps even years, piling on the agony for the newly-retired.
Experts warn that the situation is likely to worsen as annuity providers struggle with volatility in the stock market and the Bank of England’s quantitative easing (QE) strategy to tackle the recession.
The money-printing policy has been attacked for triggering “a death spiral” in pensions, which some experts say has led to the worst retirement payouts in history.
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Millions will see pensions slashed by up to 20% as new EU rules are set to send annuities plummeting
MORE bad news on pension's!! TIME TO ACT!
Millions of people could see the value of their pensions slashed by up to 20 per cent because of new EU rules.
Those with a £100,000 pension fund could be more than £1,100 per year worse off in retirement because of the reforms, research has shown.
The Solvency II rules, which are due to come into effect in January 2014, will force pension funds to hold a higher proportion of 'safe' Government bonds.
As the bonds - called gilts - have such low rates of return it will drive down the returns on retirement fund annuities, which are used to pension income.
The reforms are designed to make pension funds safer and reduce the risk of them going bust.
Annuities, which set retirement income for life, have already fallen to historic lows because of the impact of quantitative easing.
At present, a pension annuity fund may invest 20 per cent in low-yield gilts and the rest in riskier corporate bonds which have a higher rate of return.
But under the new EU rules, annuity funds will be forced to hold a higher percentage of gilts.
New research by Deloitte suggests annuity rates will plunge by between five and 20 per cent when the directive comes into force in January 2014.
A £100,000 pension pot currently gives an income of £5,837, but once the regulations come into effect they will be between £292 and £1,167 a year worse off.
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Men and women in their early 50s will need to work longer and save thousands more into their pensions – or face a poorer retirement – if the government brings forward its planned rise in the state pension age to 67 a decade earlier than expected.
Pension advisers issued the wake-up call this week, after Iain Duncan Smith, pension’s minister, said that the present timetable for rising the state pension age from 66 to 67 was “too slow”.
Under reforms planned by the previous Labour government, the earliest age at which men and women can claim their state pension had been scheduled to rise to 66 by 2020 and 67 in 2036.
But the coalition government said that it favors a faster rise in the state pension age to 67, reportedly as early as 2026.
“We’ve been clear that the current timetable for moving the state pension age to 67 is too slow, due to the staggering increases in life expectancy and we are committed to reviewing the date,” said a spokesperson for the Department of Work and Pensions (DWP) this week. “We are continuing to look at how pension ages beyond 66 will be set, including considering an automatic mechanism.” The DWP added that “no decision has been taken yet”.
An acceleration in the state pension age to 67 in 2024-2026 would hit those born between 1958 and 1969 – meaning that people currently between the ages of 42 and 53 would have to wait a year longer than expected to claim their state pension.
Alternatively, to make up an extra £5,312 to cover that ”missing” year of the state pension, a 47-year-old would have to start saving about £10 extra per month from now, in a personal or defined contribution company scheme, according to independent financial advisers Hargreaves Lansdown.
“If they wanted to target a lump sum of £7,500, which is roughly where we expect the new universal state pension to end up, they would need to save around £14 a month,” said Tom McPhail, head of pensions research with Hargreaves Lansdown.
But for a 53-year-old, that extra contribution rises to £50 extra per month from now, to compensate for getting the state pension a year later.
“Someone who didn’t make additional provision in the form of increased saving or chose to retire later would be permanently worse off as a result of the change,” McPhail warned.
They would have to rely on private savings, either by taking more income drawdown from their pension funds in the first year, or from non-pension savings such as individual savings accounts (Isas).
Another alternative is to work longer. Following the abolition of the default retirement age in April, older workers facing an income crunch will not be forced out of the workplace, if they decide they need to earn more to boost their retirement income.
However, female campaigners this week urged the government not to increase the women’s state pension age beyond 65 until 2020.
Proposals in the Pensions Bill, which is due to receive its final reading in Parliament next month, will see 300,000 women born between December 1953 and October 1954 having to wait up to two years longer for their state pension than under the previous government reforms, losing an average in £10,000 pension as a result.
Women’s state pension age is currently rising from 60 to 65 and had been planned to reach 66 between 2024 and 2026. However, under the new rules, this will be brought forward to 2020.
“People need enough time to plan appropriately, whether that means working longer, if they can, or saving extra,” said Tony Attubato, head of dispute resolution with the The Pensions Advisory Service, an independent, non-profit advice organisation. “People really need to think about what kind of income they want in retirement and whether it will be enough.”
This advice came as new research, published this week, showed that nearly 15m workers don’t have personal or company pensions – and will have to rely on the state pension or savings to fund their retirement. Prudential, the pension provider that produced the research, claimed that individuals are missing out on up to £15,000 in tax relief by not contributing to a pension throughout their lifetime.
Individuals who want an estimate of how much state pension they will receive can obtain a forecast from The Pensions Service online at www.dwp.gov.uk/thepensionservice or by calling 0845 3000 169.
By Josephine Cumbo. FT.com full article - LINK.
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