Emma Lunn, Friday May 30, 2008

Billions have been wiped off pensions in recent months - and a shock new survey reveals that the majority of us will receive a retirement income of barely £200 a week. Find out how you can prepare now to enjoy a better standard of living in your old age

The average UK worker is set to retire on just £215 per week - a figure less than half of national average earnings and below the current minimum wage - according to new figures released today by investment giant Fidelity.

The annual Fidelity Retirement Index suggests that people are set to see their income from all sources - including state pension benefits and private pensions - drop by 53% on reaching retirement.

The median weekly wage in the UK is £457, so a 53% decrease equates to a retirement income of £215 per week - less than the weekly income of those who work a 40-hour week on the minimum wage of £5.52 per hour.

Members of final salary pension schemes - whose retirement funds are linked to current pay and length of service - can expect to retire on two-thirds of their salary after 40 years of service. But these schemes are fast disappearing to be replaced by 'defined contribution' (DC) pensions, where retirement income is tied to contribution levels and investment performance.

With pension funds losing value in the wake of the credit crunch, those people holding DC pensions are on course to retire on just 38% of their current salary - a decrease of 62% or less than £174 per week for someone on average earnings.

In real terms, such a meagre income will be difficult to live on - especially when you bear in mind that many retirees have still to pay off their mortgage. Fidelity pension expert Simon Fraser warns that if the situation is not corrected, we could see the emergence of "a generation of private pension paupers."

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How can I boost my retirement income?
If you're worried about your retirement income, there are a number of ways you can boost what you will have to live on.

You will be eligible for a basic state pension if you have paid National Insurance for enough qualifying years. If you defer claiming your pension for a year, your state pension will grow.

However, in many cases the state pension won't provide an adequate income for retirement and, for that reason, many people invest in either a personal or company pension as well. These pension funds are used to purchase annuities - investment vehicles that provide a retirement income - and you can boost your retirement income by shopping around for an alternative annuity.

The Open Market Option (OMO) was introduced by the Government to give consumers one opportunity to shop around for their annuity and compare the value offered by the company holding their pensions savings against alternative providers. Yet, according to research by Saga Personal Finance, less than half (40%) of people take advantage of the OMO.

There are other ways boost your income - if you've moved jobs often and think you may have other pension schemes you're no longer paying into, the Pension Tracing Service (thepensionservice.gov.uk) can help you if you've lost track of them. Also, those aged over-60 on a low income can claim, pension credit, which provides a guaranteed minimum income of £119.05 a week for single people and £181.70 for couples.

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Time to act
If you have a personal pension or company scheme the more you invest and the earlier you start, the better off you'll be in retirement.

According to Virgin Money a 20-year-old woman who saves £100 a month from now until she retires at 65 will only have set aside enough for an annual pension worth £12,700 in the year 2053. But this sum would only be worth a paltry £4,190 in today's money due to inflation.

Virgin Money's calculations show that saving just a small amount more could dramatically affect income in retirement. The same woman could benefit from an income of as much as £29,300 a year in real terms if she decided to increase her regular payments by 10% a year.

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