Money Mail has reported that many of those heading into retirement face far lower pension returns than they had been led to believe.

For example, a retiree who has put away £200 a month for the last 20 years will receive as little as £3,774 a year – rather than the £29,000 they were told they could expect when they took out the policy: an 87% reduction.

The report says that: “They have been hit by a toxic combination of plunging investment returns, which have left a gaping hole in pension pots, and a fall in rates on annuities, which turn their savings into an income for life.”

Many of the policies were taken out by those seeking to build a retirement fund through a personal pension when no company pension was on offer including many self employed and small business owners.

The contrast with pay outs from 20 years ago is stark. “In 1997,” reports Money Mail, “with-profit plans paid out an average £265,500, figures from respected trade magazine Money Management show.

“Big players such as Standard Life paid out £269,365 and Legal & General £267,291. Figures are based on the industry standard of a man putting £200 a month into his pension for 20 years and retiring aged 65. This year policyholders will see just £81,697 and £77,310 respectively. Prudential’s figure has dropped from £130,906 ten years ago to £84,518 today.”

Plummeting annuity rates have compounded this, with far lower returns available now than 20 years ago. Industry advice for those approaching the point where they were planning to invest or take out their lump sums is to check with their provider their expected pay out.

The unpredictability of pension pay outs is another compelling reason to keep a regular check on how your investment expectations are faring – allowing you to make adjustments to your plans if necessary.

And shortly, that will become a far easier task. RetireEasy is about to launch its new Premium version of LifePlan – and one of the great features included will be daily updates of the values of your shares and fund investments.  Look out for news of how to move over to the new service.

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