Retirement savers with a UK pension will lose an average £1,318 income a year by the end of the 2013/14 tax year, according to new research.
Government financial policy and tax relief cuts are blamed for the drop in cash by the Saga Foundation, who published the report.
Researchers conclude that two-thirds of the cash loss is due to quantitative easing and low interest rates, coupled with cuts in winter fuel payments and scrapping the age-related allowance.
The report discloses the poorest 40% of single pensioners have to live on just £8,034 a year, while couples make ends meet on £13,883 a year.
The average income of the next 40% of pensioners is £13,104 for singles and £23,998 for couples, while even the wealthiest 20% of singles have an income of £20,332.
Pension lottery
Dr Ros Altmann, director-general of Saga, said: “Pensioners are being hammered. They didn’t cause our economic meltdown yet they have been paying a heavy price as we try to fix it and they face an even tighter financial squeeze in future.
“Those retiring now are the biggest losers in life’s pension lottery as tax and benefit changes will compound the misery wreaked by paltry savings rates, plunging annuity rates and overshooting inflation.”
The study also highlights better-off couples lose up to £5,345 a year, equivalent to a 13% fall in annual income.
“These are the people who have done the right thing, saving diligently for their retirement but now they are seriously suffering,” said Altmann.
“This report contradicts conventional claims that pensioners have escaped unscathed from the impact of government measures designed to tackle the deficit. As so often, the devil is in the detail, but this analysis shows quite clearly that many pensioners are actually shouldering more than their fair share of the burden.”
Dr Altmann fears the impact of these policies will do yet more damage to the image and reputation of pensions, undermining confidence just as the government is poised to launch its flagship programme which will start automatically enrolling millions of workers into employer schemes.
New retirees hardest hit
The study predicts that 1.6 million people due to retire in the next two years will be hardest hit as scheduled changes to tax and benefits kick in, including:
- Freezing age-related allowances, costing pensioners up to £193 a year
- Cutting winter fuel payment to pensioners by £50 a year
- Changes to savings credit which reduced the maximum payment by almost £2 a week to £18.54 for single pensioners and £3.36 for couples. The qualification threshold was also increased by 8.4% to £111.80 for singles and £178.35 for couples, excluding many altogether.
“Our financial crisis has punished pensioners. High inflation and rock-bottom interest rates have been acting like a tax increase and now they are facing further financial hardship from fiscal changes coming down the track,” said Altmann
