Pensions and Isas hit by market turmoil

The pension income bought from retirement savings has fallen by 14% compared with the start of the year owing to market turmoil, experts say.



The effect of falling share prices and annuity rates means that a 65-year-old's £100,000 pension pot would buy a retirement income that was £926 lower.

The figure, from Hargreaves Lansdown, shows the effect of market turmoil on those with personal pensions in the UK.

Meanwhile, separate figures show how popular shares Isas have also been hit.

An average shares Individual Savings Account of £10,000 at the start of the year would now be worth £8,778, a 12.2% fall in value, according to financial information service Moneyfacts.

This would only directly affect people who chose to cash in this investment.

Annuity timing

The turmoil on the financial markets, especially falling shares values, has particularly affected people who have had money saved in personal pension plans and who are now cashing them in to buy an annual pension, known as an annuity.

Not only have some seen their pots shrink, but the annuity rate - the amount of annual pension they can obtain for any set sum of money - has also fallen too.

A personal pension pot for a 65-year-old has dropped in value to £91,840 since the start of the year. So the prospective annuity income has fallen from £6,497 to £5,571, the Hargreaves Lansdown figures show.

The effect on annuities in recent weeks has also been striking, according to financial adviser Billy Burrows, of the Better Retirement Group.

He said that for every £100,000 invested, the annuity income has fallen on average by as much as £360 a year, or 6%, since July 2011.

"Those approaching retirement at the moment will find themselves between a rock and hard place," he said.

"Those who have not seen the value of their pension pots fall over the last few months may wish to bite the bullet and buy an annuity because even though rates have fallen there are still some reasonably good rates around.

"Those who have suffered the double whammy of falling pension pots and falling annuity rates are in a more difficult position and perhaps some type of phased or flexible approach to retirement should be considered."