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Pensioners Expect Retirement Income To Drop

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Pensions are expected to get smaller
Pensions are expected to get smaller

People retiring this year expect to receive some £3,000 a year less than those who retired in 2008, a study has found.

The typical retirement income anticipated for 2012 has hit a five-year low of £15,500 against the tough economic backdrop, while one in five of those retiring this year expects to have to get by on less than £10,000.

The Prudential survey has been carried out each year since 2008, when people on the brink of retirement looked forward to a yearly income of around £18,600, including private, company and state pensions, a figure which has fallen by more than 16% compared with 2012.

Less than half (37%) of the "class of 2012" believe they have saved enough to secure a comfortable retirement, with men tending to be more optimistic than women.

Pensioners and those approaching retirement have been hit by high living costs, including soaring fuel bills, at a time when their savings pots have struggled to make real returns, as the Bank of England keeps the base rate at a historic 0.5% low.

Vince Smith-Hughes, head of business development at Prudential, said: "The current economic climate has created the perfect storm for people in the run-up to retirement.

"The impact of the credit crunch, banking crisis, recession and concerns over the eurozone has been reflected in the fact that expected retirement income levels have hit a five-year-low.

"It is concerning that expected retirement incomes are going down, while pensioner expenditure is going up."

Expected retirement incomes have been on a downward slide since the study began, apart from last year when people were planning to retire on £16,600 annually - £100 a year more than in 2010.

A separate study published this month by the Association of Consulting Actuaries (ACA) warned of the "seismic collapse" of private sector pensions and called for fresh incentives to boost retirement savings as auto-enrolment approaches.

The ACA reported a growing trend of employers who were reviewing existing pension arrangements to cut their costs in the difficult economic climate.

Nine out of 10 private sector defined benefit schemes have been shut to new entrants and four out of 10 are closed to future accrual, according to the ACA's study.

The Prudential survey also revealed marked regional differences in anticipated retirement incomes of more than £5,000.

Londoners retiring this year have the highest typical expected incomes of £17,900, while those in Yorkshire and Humberside have the lowest at £12,800.

The study took into account 1,003 people who are retiring in 2012.

A Department for Work and Pensions spokeswoman said: "These findings underscore exactly why we need to get people saving more and why our pension reforms will be so vital.

"Automatic enrolment, beginning for the largest employers later this year, will get millions of people saving, many for the first time."