PENSION VALUES TO FALL BY 60%

SOARING inflation could plunge millions of pensioners into poverty as it cuts the real value of their funds by 60 per cent, worrying new figures reveal.
A typical pensioner on a fixed income will lose nearly £10,000 a year in spending power during the average 20-year retirement.
At least nine in 10 people with a private pension opt for a fixed-rate income in retirement – which means around 15 million people are facing a savings crisis.
Older people approaching retirement need to see their pension funds more than double over the 20 years after they finish work if they are to beat inflation, pensions giant Prudential has warned.
Analysts said pensioners are the victims of what is known as the “Silver” rate of inflation, because they spend a higher proportion of their income than the rest of the population on price- busting food and fuel.
Prudential’s figures show that the average person retiring this year expects an annual income of £16,600. If that income remains fixed, it will be worth a mere £6,700 in 20 years – effectively a £10,000 pay cut.
Assuming that inflation remains at its current level of 4.4 per cent, pensioners will need an annual income of just over £40,000 if they expect to maintain their standard of living for 20 years.
Ros Altmann, former government pensions adviser and director- general of the over-50s group Saga, said: “Older people are suffering higher levels of inflation than the country as a whole.

“Since 2007, pensioner inflation has been nearly 20 per cent. Pensioners’ annuity income has lost around a fifth of its buying power in just four years.

“Saga has been begging the Bank of England to take the plight of pensioners and savers into account. But our pleas have been ignored, as policy focuses on protecting borrowers and banks instead.

“The result is that millions of pensioners are becoming poorer and poorer each month as prices soar.

“Those not yet retired can keep working perhaps to try to protect themselves but those already retired on fixed annuities are in trouble.”
When workers retire they use their retirement pots to buy an annuity, which guarantees a regular income.
But pension experts say 90 per cent of annuities sold are “level” schemes because the types which rise with inflation are too expensive. Tim Gosden, head of product development for Legal & General’s annuity business, said: “The average UK pension pot is only around £32,000 which secures an annual income of £1,950 for a 65-year-old man based on current rates if the payments are not increasing.

“However, if they were to opt for a pension that increases by three per cent a year, then the starting income drops to £1,410, a 28 per cent fall.

“If full index linking is required the starting income drops to £1,173, a 40 per cent decrease. When faced with these figures, it comes as no surprise that many choose to have their cake now.”
Research by Age UK recently found that Silver – or pensioner – inflation has averaged 4.6 per cent a year since January 2008 – while the average annual inflation recorded by the Retail Prices Index (RPI) over the same period is 3.1 per cent.
Vince Smith Hughes, head of business development at Prudential, said: “Pensioners on a fixed income are particularly vulnerable when it comes to rising living costs. Our figures demonstrate the extent to which Silver RPI impacts on the spending power of those in retirement.”
Joanne Segars, chief executive of the National Association of Pension Funds, said: “While getting an inflation-proofed annuity will be more expensive than a ‘no frills’ approach, it’s a decision that demands serious consideration.

“The UK simply isn’t saving enough for its old age. Fourteen million people are set to retire on an income which they find inadequate.”

Wednesday August 31 2011 by Sarah O’Grady Social Affairs Correspondent – Daily Express - full article - http://www.express.co.uk/posts/view/268253/Pension-values-to-fall-by-60

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