I’M REALLY pleased I’m not retiring now, writes business editor David Tooley.
With another 23 years or so to go until I qualify for a state pension, it does – hopefully – give the markets enough time to recover for the sake of my employer-supported defined contribution scheme.
Because at the moment annuity rates are dropping like a stone. An annuity is something you buy with your pension pot and you have to stick with it until you kick the bucket.
Increasing life expectancy, the crisis in the Eurozone and the government’s policy of printing money to buy assets, so-called Quantitative Easing (QE), are all acting as a drag on annuity rates.
The Bank of England recently decided to pump an extra £50bn of QE, which the National Association of Pension Funds (NAPF) says is causing long-term pain.
Joanne Segars, chief executive of the National Association of Pension Funds, said: “Our priority has to be a stronger economy, so we understand the Bank’s case for more medicine. But this short-term stimulus is leaving pensioners and pension funds in long-term pain.
“People who are retiring now are finding that annuity rates have been squashed by QE, and that they will get a smaller pension than they expected. Retirees who get locked into a weak annuity will find that the Bank’s money printing leaves them out of pocket for the rest of their lives.”
And there is also a massive impact on final salary pensions. I was in a final salary scheme in a previous job but I am expecting to get the letter saying they’re closing it sometime.
Joanne Segars adds: “For the companies that run final salary pensions, QE is a headache which pushes their pension funds further into the red.
“This means businesses have to put more money into their pension schemes, instead of spending it on jobs and investment. Our fear is that firms struggling with a weak economy will simply choose to close their pension schemes.”
She added that QE has had the effect of increasing pension fund deficits by around £45billion, with more to come.
The NAPF wants the Pensions Regulator to help company funds cope. But that’s for the long term. The NAPF says that there are things that people retiring can do to increase the amount they can get at retirement.
By shopping around for a good annuity and making sure they are not being ripped off by high charges, pensioners can increase their incomes considerably. But the NAPF says a third of people fail to shop around for the best annuity.
Joanne Segars, NAPF chief executive, said: “People are not powerless when it comes to their pension. By making the right moves they can get a lot more for their money without having to pay any more in.
“People who don’t get the best out of their pension could end up stuck at work for years longer than they planned.
“Getting a good deal on charges and annuities can mean the difference between enjoying retirement and spending years more at the desk.”
Even though things are tough now, it’s likely to get tougher in the future. People will have to save more and work longer to get enough for a decent lifestyle. But the alternative, of living on the state pension alone is something I find a much more chilling prospect.