Surging annuity prices and lack of market confidence in European economies means many employees may have to work longer than planned in order to retire on a reasonable income, according to a study conducted by Mercer.
The consultancy’s DC Barometer, which looks at the impact of the movement in annuity rates, investment markets and contribution rates, showed that current conditions could affect expected retirement age and retirement income of defined contribution (DC) pension scheme members.
Comparing stock market conditions and annuity price movements at the end of December 2009 with the end of May 2010, Mercer’s barometer shows that a sample scheme member planning for retirement may need to work around 15 months more in order to retire on the same income they expected based on conditions five months previously.
Steve Charlton, a senior DC consultant, said: “Employees who purchase their annuities now will get a poorer deal than those who retired only a few months ago. This is because of significant increases in annuity prices due, in part, to the turbulent markets following the debt crisis in some European countries.
“The considerable impact that swings in markets and annuity prices have on people’s retirement income highlights just how hard it is to control the outcomes of DC pension – investments – particularly when faced with uncertainty in some of the world’s major economies.
“It is important for employers to help their scheme members understand the risks involved with DC schemes so they can take appropriate action to protect themselves, in the interests of securing the maximum income in retirement.”
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