New blow to our retirement plans

SAVERS have seen the amount of pension income they can buy collapse by as much as two-thirds over the past five years.

This is the startling conclusion of research carried out by Money Mail. Millions of savers are caught in this trap thanks to dismal investment performance from with-profits companies. And it has been compounded by the severe drop in the amount of income that annuities can buy.

We asked the country’s biggest with-profits companies what they would have turned £200 a month for 20 years into, and how that compares with the same amount of money invested over a 20-year period that ended five years ago.

Specialists Annuity Direct then looked at how much these pots can buy now from an annuity, and how much 20 years’ worth of savings would have bought five years ago.

After 20 years of salting away £200 a month, a 65-year- old man would now have a fund of £94,558 at Scottish Widows. Once 25 pc tax-free cash has been deducted, the remaining money would buy a flat income of £4,468, including a 50 pc widow’s pension.

Five years ago, the same amount of money saved over 20 years would be worth £165,133 and after tax-free cash has been taken out the income would be £ 13,062 — almost three times as much.

The amount that savers can take out tax- free has also halved in many cases. This will come as an extra blow to the millions who are also saddled with poor mortgage endowments and were relying on larger tax-free cash lump sums to make up the shortfalls on their home loans. Lloyds TSB- owned Scottish Widows is far from alone in dashing the retirement dreams of its customers. Abbey, Axa, Britannic, Clerical Medical, Legal & General, Norwich Union, Prudential, Royal London, Scottish Equitable and Standard Life have all pulled the same trick.

As if this wasn’t enough, the amount of income that annuities pay out has also fallen drastically. The amount they pay is linked to interest rates which are low. On top of this, we are all living longer. While that is obviously good news, it also means our pension incomes will have to pay out for years longer. This will inevitably push up the amount we have to pay for them.

j.hopegood@dailymail.co.uk