Retirement prospects for UK workers continued to improve in recent weeks with an increase in projected annual retirement income. The latest Aon Hewitt DC Index provides particularly good news for 30 year olds who have seen a £403 increase to the retirement income they can expect to receive when retiring at aged 65, growing their annual retirement income to £19,656. This news should be tempered by the fact that although an improvement for 30 year olds, the amount is still considerably less than their estimated annual retirement income of £20,307 recorded six months ago in April 2010 and £20,992 in October 2009.
The Index also reveals a small improvement to the projected retirement income that 60 and 65 year old people can expect, with their pots benefiting from marginal annual increases of £48 and £32 respectively. The Aon Hewitt DC Index shows that the gains this month are due to the continued rise in stock market values and a slight improvement in annuity rates. The monthly increases are more subdued for older members as they are assumed to only partially invest in stock market funds because of lifestyling and tolerance for risk.
The Aon Hewitt DC Index follows the projected retirement income of individuals at different ages who contribute 10% of a £25,000 salary to a defined contribution (DC) pension arrangement and have an existing fund (valued as at September 2007) of £15,000 for age 30 and £150,000 for ages 55 and above.
Retirement income projections
The projected annual retirement income of typical DC pension investors at different ages (based on data collected on 31 October 2010 compared to the previous month) is as follows:
– 30 year old: from £19,253 to £19,656 (£403 increase)
– 60 year old: from £10,643 to £10,691 (£48 increase)
– 65 year old: from £7,821 to £7,853 (£32 increase)
Chris McWilliam, senior consultant at Aon Hewitt, commented: “For the second month in a row, employees have seen a welcome boost to their retirement income. Although this is brighter news following months of gloom, it remains important for members to understand the effect that market fluctuations and the broader economic environment can have on their retirement income. Indeed, with the removal of a default retirement age, workers will appreciate that they have substantially more flexibility over both the timing and manner in which they eventually come to draw benefits. While retirement prospects are improving it is also crucial that individuals understand the need for making meaningful contributions to their pensions over an extended period of time to ensure a healthy pension pot upon retirement.”
Source : Aon Hewitt Press Release
