People who retire today receive less than one-quarter of the pension they would have got 10 years ago, research has revealed.
Consultancy Watson Wyatt found that a man who saved for 20 years before retiring in 2007 would receive just 22% of the income he would have received for the same payments in 1997. For a woman, the figure rose to just 24%.
Lower returns on investment and the reduced annuity rates used to convert pension amounts into income are the reason for this huge decrease in income.
Stephen Yeo, senior consultant at Watson Wyatt, said: “The cost of pensions has risen due to lower investment returns, the increased cost of security and greater longevity.
“People saving for their own pension need to respond by saving more or working for longer. Those who are lucky enough to have a defined benefit pension provided by their employer will not be directly affected, though these figures do shed light on why the cost of such pension arrangements has risen so sharply.”
The figures were derived by Watson Wyatt using the annual survey of individual with profit pensions by Money Management magazine and annuity rates from its own research.