OAPs are getting the worst-ever returns from their pension

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Thousands of savers who reach retirement age use their pot to buy an annuity. The amount they can get depends on the returns available from government bonds [File photo]


OAPs are getting the worst-ever returns from their pension as annuities slump after decade of low interest rates

  • New pensioners are facing a far less certain future than previous generations
  • Research shows a steep drop in the number of people giving up work rearly 
  • Thousands of savers who reach retirement age use their pot to buy an annuity
  • But the amount they get depends on returns available from government bonds 

Retirees are getting the worst-ever returns from their pensions due to the havoc wreaked by a decade of ultra-low interest rates.

A 65-year-old who has saved £50,000 for their old age now gets a record low of £2,237 a year when they buy an annuity.

In September 2007, the same £50,000 pot would have bought a guaranteed annual income of £3,627 for life, according to research group Moneyfacts.

Thousands of savers who reach retirement age use their pot to buy an annuity. The amount they can get depends on the returns available from government bonds [File photo]

The 38 per cent fall in value has been triggered by rock-bottom interest rates since the financial crisis. 

It leaves new pensioners facing a far less certain future than previous generations and is thought to have been a factor behind a steep drop in the number giving up work early.

Baroness Ros Altmann, a former Conservative pensions minister, said: ‘The longer the policy of low rates goes on, the worse the damage seems to get. There just seems to be no end to the pain for pension savers. They’re having to work harder and harder just to stand still.’

A total of 336,000 retirees used the freedoms to get £2.8billion of cash in the three months to June, according to HM Revenue & Customs, meaning more than £28billion has been withdrawn since the reforms started

A total of 336,000 retirees used the freedoms to get £2.8billion of cash in the three months to June, according to HM Revenue & Customs, meaning more than £28billion has been withdrawn since the reforms started

Thousands of savers who reach retirement age use their pot to buy an annuity. The amount they can get depends on the returns available from government bonds.

But these are closely linked to the Bank of England’s base interest rate, which was slashed during the financial crisis of 2008/09 to protect the economy and remains at 0.75 per cent, close to its lowest ever and well below inflation.

Annuity rates dropped to a previous low in 2016 after the Brexit vote, before bouncing back over the following months.

But they have fallen sharply again so far this year, slumping by 12.5 per cent since January.

Annuities remain a vital source of income for thousands. Almost 34,000 were sold in the six months to March 2018, the Financial Conduct Authority says. 

However, reforms introduced by former Chancellor George Osborne mean retirees now have alternatives.

Instead of an annuity, you can have a ‘draw down’, where the pot stays invested and continues to rise in value but money can be withdrawn when needed. 

The whole pot can be withdrawn, although some of it will be taxed.

A 65-year-old who has saved £50,000 for their old age now gets a record low of £2,237 a year when they buy an annuity. In September 2007, the same £50,000 pot would have bought a guaranteed annual income of £3,627 for life, according to research group Moneyfacts [File photo]

A 65-year-old who has saved £50,000 for their old age now gets a record low of £2,237 a year when they buy an annuity. In September 2007, the same £50,000 pot would have bought a guaranteed annual income of £3,627 for life, according to research group Moneyfacts [File photo]

A total of 336,000 retirees used the freedoms to get £2.8billion of cash in the three months to June, according to HM Revenue & Customs, meaning more than £28billion has been withdrawn since the reforms started.

Sir Steve Webb, a former Liberal Democrat pensions minister who now works for savings firm Royal London, said: ‘This is a reminder of why pension freedoms are so important. You don’t have to lock into bargain basement annuity rates any more, which is saving thousands of people from a pretty miserable retirement.

‘If you’ve worked hard all your life and built up a pension pot, then being forced to turn that into a low-income annuity is very unfair.’

Richard Eagling, of Moneyfacts, said: ‘Given the prevailing political and economic uncertainty, there are obvious merits in a retirement product that can guarantee a regular income for life. The question is whether current rates are still a price worth paying.’



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