Cost of buying a retirement income soars 29 per cent since 2009

24th April 2013

The cost of buying a retirement income rose by 29 per cent between December 2009 and March 2o13 according to the Pension Trends survey from the Office for National Statistics.

Between December 2009 and March 2013, the cost of buying a retirement income has jumped by 29%. In 2009 a £5,000 income would have cost a man £118,000 and a woman £133,500. Today, based on unisex annuity rates, the cost is £152,800.

The median private pension savings for household where the head is aged 50 to 64 is £135,200. At the same annuity rate (sourced from MAS), this would provide an income of £4,421.

Hargreaves Lansdown head of pension research Tom McPhail says: “Many people’s expectations of their retirement incomes will be based on historical experiences (where they exist at all, far too many are still disengaged right up to the point of retirement). However with annuity rates at an all-time low, these expectations are likely to be over-optimistic.

“There is a risk that because people haven’t saved enough they will look to maximise their income today, at the expense of inflation proofing and death benefits for their spouse tomorrow. It is vital that retiring DC investors shop around for the best possible terms, seeking out an enhanced annuity where they can, and considering the most appropriate shape of annuity for themselves and their dependents. If they are unsure what to do they should take independent advice.”

The research also shows that 48 per cent of households now have DB pension rights, where 51% have DC pensions, showing that DC provision is now overtaking DB (though the relative value is still heavily weighted in favour of DB for historical reasons).

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