'Noughties' a lost decade for pensions, according to KPMG report
The last ten years could well become known as the "lost decade” for pensions, according to a new KPMG report.
- Average pension scheme returns less than half that of bank deposits
- KPMG predicts further scheme closures likely in next decade
- Individuals likely to turn away from pensions saving
- Companies face a painful pensions 'hangover'
In that time, the average pension scheme only managed to grow its assets by just over 2.25 per cent a year (before costs) while pension pot purchasing power fell from a £100,000 fund being able to buy an annuity of around £9,000 at the beginning of 2000 to less than £7,000 today.
Meanwhile, life expectancies have risen dramatically, leaving companies and individuals needing to fund a longer retirement. At the beginning of the decade, most companies were assuming that a 65 year old pensioner would live (and thus receive a pension) for the next 16 years. Now companies are expecting a 65 year old to live for 22 years - another six years of pension payments.
Market conditions have exacerbated the situation significantly. A pension scheme following a fairly typical investment strategy over the period 1 January 2000 to 1 December 2009 would have seen its investments grow at 2.25 per cent a year: a return that would have been further reduced by costs, and which compares to a return of over twice as much (4.7 per cent) if the assets had been kept on deposit in the bank.
Mike Smedley, pensions partner at KPMG in the UK, says: "The decade from 2000 tells an unfortunate story in respect of equity markets spanning from the height of the dotcom boom to the current credit crisis.”
Pensions 'Hangover'
KPMG expects that companies will need to deal with the legacy of previous pension schemes as they look ahead to the next decade.
"Companies will want to deal with their pensions hangovers from the last decade before moving forward into the next one,” said Smedley. "We expect to see more companies closing schemes before selling them to third parties. And individuals may well turn away from saving for pensions - burned by the experience of the last decade and also government policy to repeatedly reduce incentives to save.
"Over the next decade we predict that more and more people will retire relying on their capital, property or other assets rather than a pension scheme. This could be a very risky strategy as these people are likely to have a very difficult job running down their capital at the right pace to potentially see them through to age 100 and beyond!”
-ENDS-
For further press information, please contact:
Patrick Tooher, Head of Media Relations
Tel: +44 207 694 2597 / +44 7831 314671
e-mail: patrick.tooher@kpmg.co.uk
About KPMG:
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff. The UK firm recorded a turnover of £1.6 billion in the year ended September 2009. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 144 countries and have more than 137,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.
The Lost Decade for Pensions (PDF 216KB)