Private pension payouts 'plummet'

Private pension payouts have slumped in the last decade

The last decade has seen a dramatic fall in the value of payouts from private pensions, a report has claimed.

Payouts from private policies have roughly halved in the past ten years, financial data firm Moneyfacts said.

The main reasons for the decline have been falling investment returns and lower inflation, the report said.

The position of private pension savers has been made even worse because at the same time the annual income from their pension savings has dropped by 40%.

Richard Eagling of Moneyfacts said that the declines in private pension payouts and annual incomes have come despite a pick up in the stock market over the past three years.

"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," Mr Eagling said.

"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," he explained.

Falling returns

According to Moneyfacts, a 65 year old man who retired in July 1996, after 20 years of paying in £500 a year to his with-profits pension plan, would have received a payout of £61,592 on retirement.

But an identical man retiring in July this year, after making the same payments over the same period of time, would have received only £26,168 - a cut in his payout of 58%.

A 25-year with-profits pension policy would have seen its payout value drop by 53% from £120,239 ten years ago to £55,992 today, the company said.

At the same time annuity rates - the rate at which insurance companies will convert your accumulated pension pot into an annual income - have also fallen sharply.

As a result of falling inflation and lower interest rates these are now 40% lower than in 1996.

Today, an accumulated pension pot of £100,000 will produce an income of just £6,860 a year for a 65-year-old man, compared with £11,390 back in 1996, Moneyfacts said.