* 44% higher pension income achieved by waiting seven months
* Desire versus reality gap of 13.5 years - people want to retire at 58 but in reality will only be able to afford to do so at 71.5
The latest AXA Wealth Pension Index highlights the volatility income dilemma facing the UK's future pensioners.
This quantitative index measures the affordability and volatility in saving for retirement , supported by consumer research which reveals little improvement in the disparity between desired, expected and actual retirement ages.
Despite being a prime opportunity for IFAs*, market volatility is a key enemy for pension savers in the UK, who need to be aware that with annuity rates falling, the month in which someone chooses to retire can have a huge affect on their pension income. The latest AXA Wealth Pension Index shows by reviewing the expected pension income for a typical pension saver (using pension fund performance and standard annuity rates), that in the past 12 months August 2010 was the worst month to retire, with annuity rates providing an annual income of just £14,978.
However, if people had waited just seven months until March 2011, they could have enjoyed £21,515, a 44% increase. Perhaps unsurprisingly, August 2011 witnessed another decrease in pension income to £19,017 as annuity rates continued to tumble, which serves to highlight the vulnerability of pension income held in unprotected pension portfolios.
Mike Morrison, head of pension development, AXX Wealth, says: "Not only have we seen falling annuity rates but we have also seen an unprecedented fall in the amount that can be taken out by using capped drawdown. The reduction in GAD rates and the move from 120% to 100% of GAD rates post-April 2011, the underlying gilt rate reaching an all-time low of 2.75% plus falling and volatile investment markets has shown that even drawdown has its limitations.
"The whole issue of retirement and being able to draw the required level of income is becoming fraught with problems - the interaction of annuities, drawdown and the addition of portfolio protection is becoming a real minefield but one that post-RDR could lead to real opportunities for those advisers involved."
Simon Smallcombe, head of guaranteed distribution for AXA in the UK, commented: "In times of high market volatility, the timing of retirement can hugely affect the pension income received. Pension savers now either face a later retirement or the reality of simply living off a smaller pension income. Both our consumer research and the index have shown the value in securing adequate portfolio protection; without this, retirees can expect to feel the pinch."
The AXA Wealth Pension Index is supported by consumer research1 which has emphasised the significant disparity between desired, expected and actual retirement ages. The age at which the average person in the UK may desire and expect to retire can differ greatly in reality. The survey highlights:
* - The average age that people in the UK would like to retire at is 58
* - The average age that people in the UK expect to be able to afford to retire at is 65
* - The index tells us that the average age that people will be able to afford to retire at is 71.5
Using a combination of this and the AXA Wealth Pension Index data there emerges a ‘desire versus reality' gap of 13.5 years and an ‘expectation reality' gap of 6.5 years. Clearly, UK pension savers need to ‘mind the gap' and seek clearer advice in order to manage their expectations and secure the best income from their retirement.
All the findings reinforce the need for products providing downside protection and upside potential. As part of their retirement plan, retirees should seriously consider the best time of year to retire and seek the adequate advice.
AXA Wealth distributes investment and retirement solutions with guarantees through its Secure AdvantageTM Protected Capital and Lifetime Income range.
These plans give consumers the potential to:
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