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29 Mar 2024
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Personal pension payout's halved in a decade


               
The latest survey by Investment, Life & Pensions Moneyfacts has revealed the worrying extent to which personal pension returns have plummeted over the last decade for those individuals taking steps to save for a comfortable retirement.

The figures show that an individual with a personal pension retiring today could be more than 50% worse off than someone who made the same premium contributions but reached retirement ten years ago, despite the recent stock market revival.

In July 1996, a male retiring at age 65, having contributed a gross annual premium of £500 into a personal pension for 15 years would on average have built up a with profits pension fund worth £25,840 or a unit linked fund worth £19,709 (see tables below). However, the same individual retiring today, after paying identical annual premiums would be left cursing their bad luck. The average with profits pension would offer £12,306 and the average unit-linked pension just £11,696. This represents a 52% fall in the average with profits pension payout over the last decade, and a 40% drop in the average unit-linked pension.

For longer term with profits pension holders the picture is even more depressing. The average 20 year with profits pension payout has fallen 57% from £61,592 in 1996 to £26,168 today, whilst the average 25 year value has plummeted 53% from £120,239 to £55,992.

The challenge facing today’s pension savers is even tougher given the continuing fall in annuity rates. Back in July 1996 a pension fund of £100,000 would have bought a male aged 65 an annual annuity of £11,390 if he opted for the best available level without guarantee, standard annuity. Today the best standard annuity would produce an annual income of just £6,860 from the same pension pot, a fall of almost 40%.

 

5 years

10 years

15 years

20 years

25 years

July 1996

£2,942

£9,404

£25,840

£61,592

£120,239

July 2006

£2,977

£6,080

£12,306

£26,168

£55,992

10 year change

1.1%

- 35.3%

- 52.3%

- 57.5%

- 53.4%

Table 1: Average With Profits Pension maturity values July 1996 - July 2006
Figures as at 1 July (based on a gross annual premium of £500)

 

Table 2: Average Unit linked Pension maturity values July 1996 - July 2006
Figures as at 1 July (based on a gross annual premium of £500)

 

5 years

10 years

15 years

July 1996

£3,196

£8,119

£19,709

July 2006

£3,125

£5,972

£11,696

10 year change

-2.2%

-26.4%

- 40.6%

 

 

 

 

 

The situation facing many pension savers would be even more desperate had it not been for the recent stock market revival, which has delivered more attractive returns over the last three years. Lipper figures show that during the last 12 months, the average pension fund has grown by over 14%. This follows on from 13% growth achieved during the two previous twelve month periods.

Richard Eagling, Editor of Investment, Life & Pensions Moneyfacts said: “Many pension savers may have enjoyed better returns over the last three years but it is vital that they do not become complacent. The fact remains that today’s pensioners are facing a longer retirement with pension pots half the size of those fortunate enough to have retired a decade ago. These latest figures should serve as a powerful reminder that securing a comfortable retirement will only be possible for those individuals who actively monitor and manage their own pension provision.”

 

NOTES TO EDITORS:

Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry. 

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