Stockmarket falls and low interest rates shatter pension dreams

22 April 2003
Some personal pensions funds have plummeted by as much as 50 per cent over the past six years, according to new research.

Data collection group, Moneyfacts, has revealed that the stockmarket slump and low interest rates have had a devastating effect on some pension plans.

The Moneyfacts study shows that a male aged 65 who retired in January 1997, having contributed to his pension for 15 years, would have a with-profits fund worth £24,617 or a unit-linked fund worth £19,195.

However, a man retiring today, having made exactly the same payments, would have built up a fund worth only £16,514 with-profits or a 9,867 unit-linked pension fund.

With-profits pensions tend to have less money invested in the stockmarket and so have been less badly hit than unit-linked pensions.

Even if investors attempt to reduce stockmarket risks to their pension fund, there is still the problem of falling annuity rates.

Reduced pension pots and falling annuity rates due to low inflation are hitting pensioners doubly hard, Moneyfacts claims.

It points out that, a retiree in 1997 who converted a pension pot of 100,000 pounds into an annuity would have got a lifetime income of 11,020 pounds each year, assuming certain criteria. Today, the best deal available is a 7,280 pound income, a fall of 34 percent.

Editor of Investment, Life and Pensions Moneyfacts, Richard Eagling said, 'An individual retiring today would have a smaller pension fund than the same person retiring six years ago and would face the added disappointment of receiving a much reduced annuity rate.'

'Dreams of a comfortable retirement could easily be shattered unless individuals can either make up the pension shortfall through greater contributions or accept that they may have to delay their retirement.'