On National Pension Awareness Day (today, Sept 15th) leading Welsh independent financial advisory firm Seer Green is warning that people need to pile more cash than ever into their pension pots as record low interest rates are affecting annuities.
Recent figures show that the average Welsh person has retirement savings of around £87,000, yet a 65-year-old, single, non-smoking woman would only get an annual annuity or income of around £4,000 from that investment.
Annuities are financial products that people buy with their pension pot to give them an annual income. Annuity rates are linked to life expectancy as well as bond yields and interest rates.
Matt Bird, pensions expert at Seer Green, explained: “Low interest rates are knocking the whole savings and investment market at the moment but it is being felt acutely in pensions and annuities.
“The size of pension pot needed to provide a decent lifestyle in retirement has grown substantially over the last 30 years and with Brexit is looking unlikely to change any time soon.”
Matt said that these record low rates, as well as pension freedoms, has meant that many people are holding onto their pension pots for longer: “Instead of going down the traditional route of buying an annuity as soon as they retire, many are taking the riskier option of opting to take an income from a drawdown strategy, which involves staying invested for a longer time and drawing and income from these investments.
“We don’t know how long these low interest rates and this financial instability will last and so it is likely that many people will be confused about what options they have when it comes to their pension savings. Help and advice is out there and readily available through organisations like Pension Wise and financial advisers like us here at Seer Green. If in doubt, seek professional advice.”