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The rate of inflation and low interest rates are taking their toll, cutting typical pensioners’ incomes by more than £4,000 a year. Experts estimate that recently retired pensioners were receiving £4,245 less per year than if they had retired before the credit crunch. This is a cut of around 40%! The figures are based on the assumption that pensioners had £50,000 in savings and received interest. In 2007, a pensioner could see an income of £2,875 under a Bank of England base rate of 5.75% for this figure. However, with the interest rate slashed to 0.5%, this income drops to £2,625 which leaves an income of just £250 a year. According to leading economist Ros Altmann, annuity incomes have fallen by 21% since 2007. Pre-recession levels suggest that a £100,000 pension pot would have produced an income of £7,600 a year. Today that same sum would have fallen by £1,620 a year to £5,980. Income savings have drastically fallen for pensioners and inflation is eating away at their capital and annuity rates. Compare pensions with Money Expert.
Statutory retirement age to increase
On top of this, the government is planning to increase the state pension age by almost a decade. Millions of people currently in their 50s will now have to work a year longer than expected. Life expectancy in the UK has increased and the government are updating the statutory retirement age as a direct result. However, this is a major cause for concern as those hoping to retire sooner will have to wait. The plans to rise the state pension age to 67 will not take effect until the mid-2020s. However, this is much earlier than planned under the Labour government. The coalition is pushing the date forward from 2034 as the ageing population struggles through difficult financial circumstances. Simon Smallcombe, Head of Guaranteed Distribution for AXA in the UK, said; "In times of high market volatility, the timing of retirement can hugely affect the pension income received. Pension savers now either face a later retirement or the reality of simply living off a smaller pension income.”
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