Aon: Pension pots continue to shrink

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    Pension pots have shrunk further in the past four weeks, with a 30 year old’s and 60 year old’s annual pension income decreasing by £518 and £358 respectively and 65 year olds left on a mere £7,666 a year, almost half the adequate standard of living (£14,400*), according to data from Aon Consulting, the leading employee benefits and risk management firm.

    As experts continue to debate the future of the economy – with predictions varying from recovery to double dip recession – the UK’s pension investors continue to see falling returns. The predicted retirement income of a 65 year old now falls below 50% of the adequate standard of living. Even those who plan to move to cheaper countries in their retirement (recent Aon research** found that 1 in ten Brits (10.8%) would like to retire to Spain) would struggle to achieve a decent standard of living in their country of choice.

    The Aon DC Index follows the projected retirement income of individuals at different ages who contribute 10% of a £25,000 salary to a defined contribution (DC) pension arrangement and have an existing fund (valued as at September 2007) of £15,000 for age 30 and £150,000 for ages 55 and above.
    Retirement income projections
    Based on data collected on 31st July 2010 compared to a month previously, 30th June 2010, the projected annual retirement income of typical DC pension investors at different ages over the two year period is as follows:
    • 30 year old: from £19,863 to £19,344 (£518 decrease)
    • 60 year old: from £10,824 to £10,466 (£358 decrease)
    • 65 year old: from £7,925 to 7,666 (£259 decrease)
    Richard Strachan, senior consultant at Aon Consulting, commented: “Though we have seen some improvement to economic circumstances in the past six months, pension pots are in only marginally better shape than this time last year and due to the volatility in stock market activity, pension pots shrank once again during the last month.
    “As some areas of the economy forecast growth and others continue to struggle, making the right investment choices is key for any pension investor, whether individual or institutional. Employers should ensure their pension schemes – and their default funds, in particular – are invested wisely to maximise the green shoots of recovery. Individual pension investors should keep a watchful eye on their pension pots to ensure their retirement plans are on track, and make suitable provision for their future.”