A new study published by insurance giant Prudential has found that retirement incomes for those retiring today are on average £4,000 a year worse off than those who retired 3 years ago. The report found that a man who was retiring now would only get an average annual income of £18,000 compared to the 2009 figure of £20,313. This represents a fall of 11%, with women’s average retirement incomes also falling from £13,671 in 2009 to £12,250 today. Another noticeable change is that the gap between average male and female retirement incomes which has shortened. However the report says that this is down to a reduction in the average male income.
There are a number of factors which have pushed retirement incomes downwards including lower annuity rates, poor stock market returns, low interest rates and controversially the Bank of England’s policy of printing money, known as quantitative easing. The majority of those that do not have the luxury of a final salary pension convert their pension savings into an annuity when at retirement that then pays them a guaranteed income for life. However the rates offered for annuities have tumbled by over 11% in three years, leaving thousands of retirees with lower than expected incomes. Vince Smith-Hughes from the Prudential argues that saving for retirement must start as early as possible stating that…“….it is imperative for anyone looking to secure a sufficient income when they retire to begin saving as much as they can, as early as they can, and to do so regularly through life.”
At the same time as income levels have been falling, prices and inflation have risen sharply over a similar period. For example since 2007 electricity prices have increased by 38% and gas prices have risen by an eye watering 67%. For those retired and on fixed incomes they have been hit with a double whammy of higher prices and lower incomes. For most this will mean cutting back on non essential spending such as holidays and recreational activities but for the very poorest pensioners it can literally mean making the unenviable choice between ‘heating or eating‘. A report by the Institute of Fiscal Studies showed that 25% of the poorest pensioners reduced their spending on food in the winter months in order to pay for the increase in energy consumption.