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Contribution warning for pension savers

Contribution warning for pension savers

Category: Pensions

Updated: 09/02/2010
First Published: 09/02/2010

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Personal pension savers have been warned they face an uphill battle to fund a comfortable retirement, unless they dramatically increase their contributions.

New research from has revealed that a combination of disappointing stock market returns and plunging annuity rates have seen pension incomes slump by almost three quarters over the last ten years.

The size of the average personal pensions pot has dropped by 60% over the last decade, with the dotcom crash and credit crisis both taking their toll.

It is a situation that would have been even worse, had it not been for the recent stock market revival, which saw the average pension fund grow by more than 22% in 2009, the highest annual return since 1999.

Meanwhile, falling gilt yields and improving mortality rates have combined to leave average annuity rates 28% lower than they were ten years earlier.

As a consequence, a male contributing £100 gross per month into a balanced managed fund over a 20 year period and retiring at age 65 with a standard level without guarantee annuity will have seen his pension income fall from £8,998 per annum in January 2000 to just £2,542 in January 2010, a drop of £6,456 or almost 72%.

To achieve the same pension income as someone who retired a decade ago and had been contributing £100 per month gross, those retiring now would have needed to save around £355 gross per month instead.

"Although these figures do little to inspire confidence, they at least serve as a powerful reminder of the investment risks inherent in saving via a defined contribution pension," said Richard Eagling, Editor of Investment Life & Pensions Moneyfacts.

"It is clear from such alarming statistics that if the pensioners of tomorrow are to enjoy the same level of retirement as their predecessors, much has to change, and quickly."

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