Average retirement incomes are at record lows one year on from the pension freedom reforms, a new report has revealed.
According to consumer website Moneyfacts.co.uk, the retirement income for an individual saving into a personal pension and then taking an income through an annuity has dropped by nearly 10% since April last year.
Moneyfacts calculated that someone who had paid £100 gross per month into an average personal pension fund for 20 years would have built up a pension fund of £42,470 if they retired now, compared with £45,946 if they had retired a year ago.
Taking into account the fall in annuity rates over the past year, this equates to an average annual retirement income of £1,983 today compared with £2,191 a year ago.
Pension funds have also performed poorly over the past 10 months, dropping by 2.3% on average over the last year.
Meanwhile, the average annual income payable from a standard annuity has fallen by between 2% and 3.4% and by between 5.7% and 6.3% for an enhanced annuity.
Pension freedoms were introduced in April last year and allow anyone over the age of 55 to take some, or all of their pension, as a lump sum, with the first 25% paid tax free.
Richard Eagling, head of pensions at Moneyfacts, said: “The continuing fall in annuity rates is particularly disappointing as annuity sales are starting to revive as more retirees realise the importance of a secure regular income. While pension freedoms have created more ways for individuals to access their pension pots, the real problem facing retirees is how to generate a suitable income.
“Unfortunately, there are still few products capable of helping retirees secure a reasonable retirement income, which was always one of the fundamental problems. In fact, if anything, the new pension freedoms have proved counter-productive for retirees reluctant to take any risks with their pension pots as annuity providers have struggled to offer competitive pricing given the more limited business volumes at stake. As more individuals shift to private pension provision through defined contribution schemes the risks they face in achieving a decent retirement income are becoming clearer.”
