The effect of stock market drops, low interest rates and high inflation have combined to leave pension funds around a third smaller than than three years ago.
Figures calculated by pension experts at global accountancy consultants Pricewaterhousecoopers (PwC) reveal a £300,000 pension fund converts in to an £18,500 a year pension – but only a month ago the same fund would have valued at around 5 per cent more at £19,500.
Even worse, three years ago, that fund would have paid out £22,500 a year.
The firm warns pension savers heavily relying on equities are likely to have seen returns deteriorate even more to as low as 30 per cent of the value 36 months ago.
Peter McDonald, partner in the pension practice at PwC, said: “Compared to only three years ago, a money purchase pension is now worth perhaps 30% less than it was.
“Many people retiring now will be caught between a rock and a hard place. If they defer buying an annuity until prices improve, they’re stuck with no income in the meantime, which might not be an option.
“This huge reduction is due to a double-whammy of higher annuity costs and a smaller pension pot where investments hadn’t switched out of equities before retirement. This could happen if someone finds themselves out of work unexpectedly – not an uncommon scenario in the current economic climate.”
PwC reiterates advice to retirement savers to shop around for the best annuity and savings deals rather than settling for offers made by their pension providers.
“The first generation of people on defined contribution pensions is starting to come through. Luckily many will this time have alternative pensions as they may have only been in a defined contribution scheme for perhaps a decade. The same won’t be true for future generations.,” said McDonald.
“A number of employers and trustees are recognising this and taking serious steps to advance warn members approaching retirement of the risks they face and the options they have to protect and maximise their income.”
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