Pension funds cut in half in just 10 years

Personal pensions have more than halved in value over the past 10 years, new research shows. Moneyfacts, the personal finance data analyst, said a man retiring at age 65 in July 1996, having paid £500 a year into a personal pension for 15 years, would have had an average of £25,840 to spend on a retirement income. The same policy maturing this year would have produced just £11,986.

Richard Eagling, of Moneyfacts, said the damage caused by the collapse of the stock market between 2000 and 2002 had hit pension funds so hard that a recovery in more recent times had not been enough to rescue savers invested in with-profits plans, where returns are smoothed out over several years.

"Many pension savers may have enjoyed better returns over the last three years but it is vital that they do not become complacent," Eagling said. "The fact remains that today's pensioners are facing a longer retirement with pension pots half the size of those who were fortunate enough to have retired a decade ago."

Moneyfacts warned that the problems facing savers were even worse because of a collapse in the rates available on annuities, the insurance plans that personal pension policyholders are required to use to convert their funds into a regular guaranteed lifetime income.

In July 1996 a pension fund of £100,000 would have bought a 62-year-old man an annual annuity of £11,390. Today, the best annuity would produce a yearly income of just £6,860 from an identical pension pot, a decline of almost 40 per cent.

The figures are likely to be seized on by savers who have shunned personal and occupational pensions in recent times in favour of other retirement investments, such as buy-to-let property.