Pension savers 'need £35,000 extra'

Elderly couple walking on beachA man approaching retirement needs to have a pension pot almost £35,000 bigger than he would have done four years ago to achieve an income of £5,000 a year, a report shows.

The Office for National Statistics (ONS) found that a single 65-year-old man has seen the level of savings he would need shoot up from around £118,000 in 2009 to £152,800 by March 2013.

From December last year, new gender equality rules came into place which mean that men can no longer be offered better annuity rates than women on the basis that men tend to have shorter lifespans.

Annuity rates, which set the size of someone's retirement income for life, have been in general decline in recent years, which some pensions analysts have put down to side-effects of the Bank of England's efforts to kick-start the economy.

The ONS said that according to Money Advice Service figures, by March this year, a man or a woman would need to have £152,800 put by to attain a £5,000-a-year income.

Women have also seen the buying power of their pension pots eroded, although the decline has been slightly less severe. In 2009, a woman would have needed £133,500 saved up to buy a yearly income of £5,000, according to the ONS's Pension Trends research.

Women tended to be offered worse annuity rates than men until the new European "gender neutral" rules came into force, meaning that insurers can no longer offer someone a different price on a range of policies and benefits, also including car insurance, based on their sex.

Financial information website Moneyfacts recently reported that men's pension annuity incomes plunged at the steepest rate in 14 years during 2012, with an 11.5% slide.

Rounds of quantitative easing (QE) to breathe new life into the economy have been blamed for plunging annuity rates.

QE makes it cheaper for companies to borrow by pushing down the yield on government bonds, but annuity incomes are also based on these yields, meaning that new pensioners see their incomes reduced.

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