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Retirees 46% worse off today than 10 years ago

Retirees sitting under an umbrella

Ten years on from the credit crunch and we’re still feeling the after-effects of the financial crisis. Retirees are achieving typical annuity incomes of 46% less than in 2007*.

A report by GoCompare** found that:

  • A half (46%) of British people feel worse off now than they did 10 years ago
  • A quarter are worried that another financial crisis would leave them in serious financial trouble
  • More than half (55%) are worried about rising household bills and the rising cost of living, following the energy price hikes over recent months which are still ongoing

Retirees’ annuity incomes almost halved

It has also been revealed by Telegraph Money that retirees who invested into a pension are retiring today with 46% less income from their pension fund than ten years ago. The lower annuity income is attributed to the lower wage increases, annual investment returns and annuity rates witnessed over the last decade.

Research conducted by fund manager Fidelity shows that the typical pension pot in 2017 can achieve an annual income of just £6,607 – that’s just over half the £12,193 that retirees typically enjoyed in 2007*.

The figure highlights the lasting impact of the financial crisis on savers approaching retirement and raises the question of how they could make up the shortfall in their later-life income.

A decade on from the financial crisis

August 2017 marked a decade since the credit crunch hit the UK following the infamous collapse of Northern Rock. It went on to become the worst financial crisis since the Great Depression of 1929 – 39.

Interest rates have remained low ever since, resulting in pitiful returns on savings, stagnant wages and disappointingly low annuity rates. The crash has left many savers and retirees struggling to get by, particularly those relying on their private pension pot to see them through retirement.

Workers approaching retirement are missing out following the cuts to rates, too. While salaries grew by 1.7% between 2007 and 2017, the cost of living increased by 2.7% annually, so workers have suffered a pay cut over the last decade*. Concerns have been raised that more and more people could be relying on unsecured loans and credit cards to see them through.

To make matters worse, inflation is rising and today is at 2.6% thanks to the rise of energy prices and car insurance**. It makes it all the more important for people to shop around for the best deal possible and never let your insurance policies automatically renew without comparing prices first.

Terraced houses in London

House prices on the up

It’s not all doom and gloom of course. The good news is that house prices have been steadily rising since the credit crunch knocked thousands of pounds off the asking price of the average home in the UK.

According to the Nationwide House Price Index, the average home was worth £181,810 in the middle of 2007.

Despite tumbling to £149,709 by the first three months of 2009, the average price of a home today has risen to £209,971, that’s £28,161 more than a decade ago!

It’s even better news for people living in London. Whilst rapidly rising house prices in the capital slowed to £302,486 in the third quarter of 2007, today the same house would be worth £478,142 – a staggering £175,656 more equity.

Perhaps the surge in house prices will see more homeowners utilising their property wealth to overcome the problems still facing later-life workers and prospective retirees?

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*Telegraph Money August 2017
**Moneywise August 2017