Pension Trends

Just how much dearer has a retirement income become?

The Office for National Statistics (ONS) produces a series of pension data, called Pension Trends, which it divides into 14 regularly updated chapters. In April, the ONS issued an update for Chapter 10, ‘Saving for Retirement.’ This contained a table on annuity costs that produced a few attention grabbing headlines in the press. The table showed the cost of producing a specific level of inflation-linked income now and December 2009 for someone aged 65.

Annual income

£5,000

£10,000

£15,000

£20,000

£25,000

Man in 2009

£118,000

£236,100

£354,100

£472,100

£590,200

Woman in 2009

£133,500

£267,100

£400,600

£534,200

£667,700

Man or woman    in 2013

£152,800

£305,600

£458,300

£611,100

£763,900

Men have seen a 29% jump in annuity costs, while for women the increase is about half as much. The increase is down to three main factors.

  1. 1.      There has been a fall in real yields on index-linked securities, which underpin inflation-linked annuities.

 

  1. 2.      The mortality of pensioners has continued to improve. The 65 year-old of 2013 will generally live longer than the 65 year-old of 2009.

 

  1. 3.      Unisex rates were introduced in December 2012 for annuities as the result of a European Court ruling. Rates for men consequently fell, while rates for women rose slightly – hence the difference in overall increased cost.

The ONS also published data on the wealth (excluding the main residence) of those close to retirement. These numbers are rather out of date (2008/10) and need to be treated with caution because of the way in which wealth is spread. For those aged between 50 and 64, the ONS says median (mid-point) net household savings were £195,600, of which £135,200 was in private pension savings. The average figures were much higher – £440,700 and £348,000 respectively – because of the concentration of wealth in the top 10% of households. 

Wealth measured in hundreds of thousands looks impressive, but when you apply those annuity costs, it becomes only a modest income.

24th May 2013

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