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Income From Pensions Down By 80% In 10 Years, Warnes Specialist - Financial Times February 06

Savers are getting nearly 80 per cent less from their pensions than they were a decade ago, Watson Wyatt, the pensions specialists, said yesterday.

The warning came on the eve of a government sponsored conference on proposals for a national savings plan that would put all the investment risk on individuals. Falling interest rates and lower investments returns meant after 20 years of saving the pension pot was less than half what it would have been 10 years ago, said Stephen Yeo, a senior actuary with Watson Wyatt.

And a combination of lower interest rates and rising longevity meant that annuity rates used to convert the pension pot into an annualized income had also fallen by nearly half.

"Once these two cuts are combined, the resulting income is down by 78 per cent for savings of identical amounts," Mr Yeo said.

That raised questions about three of the four alternatives for a new savings plan, he said. The Pensions Commission proposals from Lord Turner and alternatives from the Association of British Insures and the National Association of Pension Funds are all aimed at providing a low-cost savings vehicle.

"People on above average incomes, or those saving with the benefit of a significant employer contribution, may be able to tolerate wide fluctuations in the return on their savings," Mr Yeo said. "But it is less clear that these schemes will provide pensions that are suitable for the vast bulk of savers who need the proceeds to provide even a basic standard of living retirement."