Andy Zanellli, head of retirement planning, AXA Wealth, comments on Mark Carney, Governor of the Bank of England's announcement that interest rates will not rise until the unemployment rate has fallen to 7%, which could take a minimum of three years based on estimates.
"Four years of record low interest rates have severely impacted and eroded savings across the UK, resulting in lower disposable income and returns. Recent research from AXA Wealth1, which shows that the average shortfall in pension provision for adults in the UK is more than £4,600 per year, demonstrates the scale of the long-term savings challenge faced by the UK.
"Additionally, this low interest rate environment has brought annuity rates tumbling down, presenting a challenging situation for those who have been unlucky enough to retire and annuitise recently. Today's low annuity rates, which represent a once in a lifetime purchase, potentially leave people facing a far leaner retirement income than they may have expected. In fact, the same research from AXA Wealth shows that those aged over 55 are the least prepared for retirement, with an average yearly shortfall of £7,896.72, a massive 71% more than the national average and 29% of their overall pension requirement. This is particularly concerning as these are the people who have the least time to make up any shortfall in their savings.
"The announcement this week from Mark Carney offers no respite to those who have already been affected and will affect many more. It is vital that people explore the range of products available to them to aid planning their finances and help mitigate the wider economic environment. This includes reviewing investment vehicles and the ambitions held for them as well as considering alternative options including variable annuities as well as making the most of the open market option. People must engage with the financial planning process early and put themselves in the strongest position possible for their later years."
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