Although the UK’s defined contribution (DC) pension funds have seen a £30 billion improvement to £485bn in the last month, UK workers still face a ticking time-bomb according to Aon Consulting, the leading employee risk and benefits management firm.
Aon’s DC Pension Tracker for August shows expected retirement income for those now aged 60 to be just £12,021 per annum, or £231 per week. This is a staggering 52% less than the 2008 average annual UK wage of £24,908 or £479 per week according to the Office of National Statistics*.
At the end of August, projected pension income for typical workers with average pension contributions are as follows:
- A 65 year old worker retiring at the end of August with only DC pension savings would, on average, receive £8,816 per annum, only a third (35%) of the 2008 annual wage. This compares to a year ago when a retiree with only DC savings could expect to retire on £10,105.
- A 30 year old worker can expect to retire on £21,760 per annum, down slightly from a year ago when projected DC retirement savings were £22,617.
Aon’s DC Pension Tracker measures the total asset value of UK workers’ DC pension accounts. It also tracks the income in retirement of individuals at different ages who contribute 10% of their £25,000 salary to their retirement savings and have an existing fund (valued as at September 2007) of £15,000 for age 30 and £150,000 for ages 55 and above.
Helen Dowsey, head of DC at Aon Consulting, commented: “While it seems the UK economy is experiencing some green shoots, UK workers with DC pensions show only a slightly improved situation from a few months ago. Although a well-managed DC pension undoubtedly has the potential to offer a good level of retirement income, the onus is on the member to be proactive in order to build and safeguard their investments.
“Unless markets not only make a full recovery and continue to rise even further, UK workers and retirees will need to make some very difficult decisions. People should be very realistic about the income they will need in retirement and about the age they will be able to afford to retire, and must ensure their pension savings are adequate to meet their needs.
“It is also vital to shop around for the best annuity on the open market. Many people do not realise that there can be several thousand pounds of difference between the best and worst annuities, or that the initial reduction in income on an inflation-linked annuity might actually leave you with more money in the long-term.
“Those approaching retirement imminently should seriously consider investing in professional independent financial advice to see what can be done to boost their retirement income. It could even be worth considering delayed retirement.”