Pension income has dropped by nearly half for retirees who left work in the past decade compared to those who retired before the financial crisis.
Lower investment returns and poorer annuity are blamed for the lower incomes.
Analysis of retirement earnings by financial firm Fidelity International show that pension incomes have dropped by 46% for today’s recently retired.
The results compared the income of retiring in 2017 with 10 years of savings and returns behind them with the same data for those who retired in 2007 who had been saving since 1997.
Flexibility comes with a risk
Because wages dropped after the financial crisis, the latter group could only average savings of £139,110 over the decade, compared to £180,106 for the other group.
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.”
Chance of decent growth
He suggested that savers should take advantage of any offered employer contributions to boost pensions, as well as ensuring that pension cash is invested to take a level of risk individual savers are comfortable with, while giving savers a chance of decent growth.
Since the credit crisis, interest rates offered on savings have plunged as the Bank of England official rate has been pegged at the lowest level ever – between 0.25% and 0.5%.
As interest rates have plummeted, many providers have dropped out of the annuity market and returns have collapsed.
However, house prices and the stock markets have continued to rise to recover or pass their pre-credit crisis peaks.
Retirement Income Comparison 2007 – 2017
Source: Fidelity International