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Pension payouts plummet over decade

Pension payouts have more than halved over the last 10 years, says personal finance research firm MoneyFacts,

In July 1996, a male retiring at 65 who contributed a gross annual premium of £500 into a with-profits personal pension for 15 years would on average have built up a pension fund worth £25,840 or a unit linked fund of £19,709.

But a person retiring today on the same criteria would receive an average with-profits pension of just £12,306 or unit-linked pension of £11,696.

This represents a 52 per cent fall in the average with-profits pension payout over the last decade and a 40 per cent drop in the average unit-linked pension.

The figures are even more gloomy for longer-term with-profits pensions, with the average 20-year with-profits pension payout falling by 57 per cent from £61,592 in 1996 to £26,168 today.

The problem has been further compounded by a decline in annuity rates over the past 15 years. A 65-year-old man who could have secured an annual income of £1,139 from an annuity purchased for £10,000 in 1996, can only expect an income of £686 in today’s market.

Hargreaves Lansdown head of pensions research Tom McPhail says: “The catastrophic decline in annuity rates was all right when fund rates were high but now they have declined and investors are getting the worst of both worlds.”

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What employers should expect over the next five years

A major feature of our articles is looking into the Jelf Employee Benefits crystal ball to predict changes and trends that may influence the short and medium term shape of UK employee benefits.  By flagging such changes early we aim to provide our followers with the tools to make sensible and informed decisions on their benefits offerings.

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