Those with defined contribution pension schemes will have lost an average of £1,300 from their pension funds in the past six months. Actuaries, Alexander Forbes, have said that the loss was due to plummeting share prices and lower annuity rates.
The FTSE 100 share index had fallen by 9% since the beginning of March to the beginning of September to 5,418. Last Friday saw it fall another 4% to just 5,066.
Spokesperson for Alexander Forbes, Alan Carey said: “The last six months of 2011 have been dire for defined contribution pension savers,”
“A combination of falling growth asset values, reduced bond yields and ever increasing longevity have combined to further reduce the value of workers’ pension savings.”
When calculating the figures, the firm took into account people who were just about to retire and also the effect that the recent stock market turmoil will have on the younger generations.
It worked out that an average defined contribution saver would be aged 41½ and be saving 8%-12% of their salary, including their employers’ contributions. The rate of return on their investments would be 1.5% above inflation.
William Burrows, the annuity brokers, explained that falling bond yields have added to decreased annuity rates, saying: “Annuity rates seem have to have bottomed out but as the benchmark 15-year gilt yield has fallen a massive 90 basis points from 3.75% on 22 July 2011 to 2.85% today further cuts are not out of the question.”
Financial services company, Hargreaves Lansdown, announced last week that the effects of low annuity rates would mean that a 65 year old with a pension fund of £100,000 would receive £926 less retirement income than at the beginning of the year.
The Association of British Insurers (ABI) have appealed to people to shop around for the best annuity rates, rather than simply accepting the deal offered by the firm they have been investing with. They have calculated that around a third of pensioners don’t currently shop around for the best deal and therefore deprive themselves of a higher retirement income.
They went on to say that a new code of conduct for members of the ABI now stops them from sending annuity application forms to customers who are saving in their pension schemes.
“This will stop consumers from automatically rolling over their pension savings to an annuity with their current provider,” the ABI said.
“The new code will also ensure that customers receive all the information they need to shop around in one easily accessible place,” it added.
