Turbulence adds extra 15 months

People approaching retirement face having to work for another 15 months just to offset the impact of recent investment market volatility, research suggested.

The value of a typical pension fund for someone who is in their 50s who has paid in the equivalent of 12 per cent of their pay each year, including their employer's contribution, has dropped from 283,000 in December to 281,000 by the end of May due to the stock market fall, according to consultants Mercer.

At the same time, the rates paid on annuities, which are used to convert a pension's pot into an annual income, have fallen by around 4 per cent.

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People could expect to receive an income of 34.20 a year for every 1,000 they had saved in a pension in December, but by the end of May this had dropped to 32.90 a year for every 1,000.

The group said the impact of the stock market volatility and drops in annuity rates on workers' pensions meant people may have to delay retirement for 15 months, just to offset the falls suffered since December.

Steve Charlton, a senior defined contribution consultant at Mercer, 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."

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