Aon Hewitt research: DC pension pots shrink

The projected retirement income for members of defined contribution (DC) schemes has fallen in the past year, according to the Aon Hewitt DC Index.

The index found that the projected annual retirement income for 60 year olds has fallen by £751 from £11,216 to £10,465.

A 65 year old’s projected retirement pot has dropped from £8,233 to £7,674, while for a 30 year old, it has dropped from £20,163 to £19,624.

The Aon Hewitt DC Index follows the projected retirement income if individuals at different ages who contribute 20% of a £25,000 salary to a DC pension arrangement, and have an existing fund, as valued as at September 2007, of £15,000 for age 30, and £150,000 for ages 55 and above.

John Foster, DC consultant at Aon Hewitt, said: “The projected retirement income for DC scheme members shows that they are worse off now than they were a year ago, despite the general feeling of improved economic optimism for the new year.

“Someone aged 60 at the start of 2010 would have seen a projected retirement income of over £750 a year more, than someone reaching 60 at the start of 2011.

“Markets are very quick to respond to negative forecasts and bleak growth prospects but take longer to recover as confidence slowly rebuilds. †

“Pension investors, both individuals and institutions, need to balance potential upside with the level of risk, in the form of short term volatility, in a way that fits best with the time horizon for their investment.”

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