Volatile markets slashing DC pension pots – Aon

Higher annuity rates and volatile market conditions have dented retirement prospects for UK workers over the last few months, suggests research from Aon Hewitt.

The outsourcing arm of Aon said younger people have been hit particularly hard from the toxic combination of higher annuity rates and tough economic conditions.

According to its index tracker - which shows projected retirement income for individuals with defined contribution (DC) pension schemes - a 30-year-old has seen his or her expected retirement income slashed by over £800, or 4%, over the past three months from £19,238 to £18,399 per annum.

A 60-year-old has seen his or her expected retirement income fall 2% from £12,194 to £11,976, whilst a 65-year-old has also suffered a 2% decrease from 7,942 to £7,809.

Aon Hewitt benefits consultant John Foster said this quarter's index recorded the highest annuity price since its inception in September 2007.

"Combining this with high market volatility and an uncertain economic climate has had an impact on the value of pension pots for DC scheme members in the UK - they have significantly dropped in equity value," he said.

But he added amid this gloomy backdrop, positive returns on bond and gilts have increased confidence in the long-term outcome for pension pots.

"While market fluctuations can affect the expected retirement income, they should not be considered as a major distraction, as pensions are a long-term investment vehicle," he said. "

"There is always a degree of risk involved in seeking higher returns, and it is important not to over-react to these short-term fluctuations. This is particularly relevant for members who are 20, 30 or 40 years away from retirement."