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Our Ever Shrinking Pension Payouts?
Becky Barrow of the London Mail reports, Our ever shrinking pension payouts: The millions facing lowest returns on investments since records began:
Millions approaching retirement could be devastated by the worst pension payouts since records began.
Despite
saving the same amount of money into their pensions, they face the
dire prospect of getting about half the income they would have received
15 years ago, research reveals today.
It comes on top of the
collapse in final salary pension schemes, with millions locked out of
the best type of retirement provision.
Experts
said employees who want to retire are facing a nightmare which no
previous generation has had to cope with. The plunge in pension payouts
is because annuity rates have nose-dived. Annuities offer a guaranteed
monthly income to those who have saved into a pension pot.
But
over the last month several major investment firms, such as Aegon, Aviva
and Legal & General, have started to cut their annuity rates.
Their
rivals are almost certain to follow and experts predict that rates will
fall even lower over the coming months. Around 50,000 people a year buy
an annuity, with up to £20billion of their hard-earned cash ploughed
into the investment products.
The
decision about which annuity to buy, when to buy it and which company
to buy it from is one of the biggest financial decisions a person ever
has to make.
Because it dictates how much money a
pensioner will get every month for the rest of his or her life, it can
mean the difference between enjoying a comfortable retirement, and a
retirement surviving at the most basic level.
Today's research, from the financial information firm Moneyfacts, looked at the annuity which a £10,000 pension pot can buy.
In
1995, a 65-year-old man buying an annuity would have received an
average annual payout of £1,111. Today, a man of the same age with the
same pension pot would get just £606 a year, a drop of 5 per cent which
shows how rapidly annuity rates have plummeted.
Just 12 months ago, the same fund would have bought a pension of £647 a year.
The
average pension pot is about £30,000. For a man aged 65, this would
have resulted in an annuity worth around £3,300 a year in 1995,
compared with just £1,800 today.
The report's author, Richard Eagling, said the findings would be 'a rude awakening for many'.
The victims will be 'baby-boomers', born after the end of the Second World War who are now starting to retire.
After
a lifetime of saving into a pension, many will be shocked and
disappointed by the income that they will get from it, and feel that
they are being forced into staying at work.
Dr
Ros Altmann, a pensions expert and former Treasury adviser, said:
'Pension savings are being decimated by these appalling annuity rates.
'These
poor people have saved all their lives, and they are being locked into
these terrible annuity deals for the rest of their lives.'
Tom
McPhail, head of pensions research at the independent financial
advisers Hargreaves Lansdown, predicted that the worrying situation
will get even worse.
He said: 'This is a retirement crisis that is happening now. Annuity rates are likely to fall further in the immediate future.'
He
urged people to shop around when they come to cash in their pension,
rather than take out an annuity with their pension company.
About two-thirds of people fail to look elsewhere, despite the fact that it is almost always possible to find a better deal.
The rates vary according to key issues, such as age, gender and physical health.
The annuity rate crisis highlights the growing pensions apartheid in Britain between public sector workers and everybody else.
State workers get a gold-plated 'defined benefit' pension, which means they do not have to buy an annuity.
The
majority of private sector workers do not even have a pension. If they
do have one, it is likely to be a 'defined contribution' pension,
which means they do have to buy an annuity.
More
than 40 per cent of employers are threatening to slash the amount of
money they pay into their workers' pensions over the next few years.
At
present, bosses are under no legal obligation to pay into a pension
for workers, but from October 2012 they must pay at least three per
cent of salary into a retirement pot for every employee.
A
survey by the Association of Consulting Actuaries of firms employing
more than 1,000 people found that 41 per cent of bosses may cut the
amount they currently pay into their existing pension scheme, or close
existing generous pension schemes and sign everybody up into a new,
less generous pension.
Pension poverty
is a recurring theme on my blog. I saw this coming years ago, but
it's much worse than I envisioned. Oddly enough, some people think we
shouldn't address the retirement crisis, just let these people suffer
and live on a fraction of what they were expecting to retire on
comfortably.
Anything we do now is too late. It's a disaster and what's going on in
the UK is happening across Europe and will soon reach North America.
Historic low rates have decimated savers, forcing them to speculate in
the markets to try to make up for the lost income due to low annuity
rates. But in this wolf market, forcing people to speculate is like herding lambs to their slaughter.
Policymakers
around the world need to first admit there is a retirement crisis and
then have to formulate a comprehensive strategy to reform the financial
system and retirement systems so that they limit the damage as much as
possible. Too many people are slipping through the cracks, and my
biggest fear is that the retirement crisis will get much worse as
demographic pressures swamp us.
Below, listen to an interview with Dr. Ros Altmann which took place last
year. If we ignore this crisis, it will spread and end up costing us a
lot more than if we took measures to address it now. If there was ever a
time for pension reform, now is it. This should serve as a wake-up call
for those politicians and analysts who foolishly believe that everything
is fine. Nothing can be further from the truth.
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Leo, You are 100% wrong on this. The fed has no power. They are struggling and you know it. The have no arrows left in their quiver. Every step they take will result in lower market values for equities. You want this??
To me it looks like we are setting up for a move to the lows of March 2009. And you see nothing but good news.
I'll guess that the wolves are the guys that sing "money for nothing and the chicks are free" just give me a hint on how the FED will make that $150K house (headed for $100K) worth $300K again...
People may be waking up to the fact that as an investment, houses suck. Without the ponzi effect, they are just another consumable with high annual costs. It's interesting that the nation with the highest percentage of millionaires (Switzerland) has the lowest percentage of home ownership (22%).
People are blind to the most obvious fact that after they've paid off the mortgage they've paid twice the value of the house - and look at property taxes.
You still believe in Santa Clause? Value cannot be printed. http://www.econosseur.com/assets_c/2009/01/BernankeClaus-thumb-510x361.jpg
"What really worries me is that the wolves know this, and have been scooping up equities"
Equities have been dead for 12 years, if the wolves live on their returns they died of starvation long ago.
Unlike most people, wolves don't buy & hold equities, they PUMP AND DUMP them.
"the Black Sloth that I've been warning policymakers about is spreading"
Leo is warning the policy makers, its all starting to make sense now.
Here you go, fast forward to 26 minutes in:
http://parlvu.parl.gc.ca/Parlvu/asx/playlist.aspx?files=/2009/2009-04/0001134d.wmv
Still think I'm a stooge for pensions?
Hey... that black sloth is my li'l brother! But you're right about him... the moss grows thick and luxuriant on his lazy pelt.
Ever the dark realist, my prediction is that these problems will be quietly ignored whenever possible.
Sure, AARP may stir up some upset starving pensioners. But overall, I think the reaction to this growing crisis is just to let them starve in their cold, dark hovels.
Oh wait, that's me I'm talking about. In that case, I'm sure SOMEBODY is taking appropriate action.
To summarize: "Hey everyone, look at me! I'm still relevant"
I liked it. +10 Good Post NoVOlumeMeltup. Nailed it.
NFOL!
(No Fan of Leo)
Can you please go back to your Yahoo message board? Thx.
Sure. I'll leave just as soon as the genuine U.S. recovery you've been touting actually takes place. So what, about a month or two?
when your parents said you could be anything you wanted, all you could come up with was being a asshole?
http://www.rgbpicture.com/img/funny/majice/majice03.jpg