Ten years on from the collapse of Northern Rock, the devastating impact of the financial crisis on the pensions of savers approaching retirement is only now becoming clear.
A potent mix of record-low interest rates, stagnant wages and rising inflation has left pension investors a staggering 46pc worse off than those who retired before the crisis, analysis compiled exclusively for Telegraph Money reveals.
The research, conducted by Fidelity, the fund manager, shows that a typical pension pot in 2017 would be able to produce an annual income of only £6,607, only just over half the £12,193 retirees in 2007 enjoyed. The analysis compares the 10 years before 2007 – the year when Northern Rock imploded and the US investment bank Bear Stearns realised it was in trouble – with the past decade.
It assumes that someone with an existing £50,000 pension pot and a salary of £45,000 is saving 12pc of their wage into a pension. Average earnings rose by 3.5pc a year between 1997 and 2007, according to the Office for National Statistics, more than keeping pace with inflation, which averaged 2.6pc over the same period.
But while salaries grew by 1.7pc between 2007 and 2017, the cost of living rose by 2.7pc annually, meaning that workers suffered a pay cut. Falling real wages were exacerbated by lower investment returns. A typical pension portfolio comprising 60pc global stocks and 40pc global bonds returned 5.9pc a year in the decade to 2007.
However, returns on the same portfolio nearly halved (with returns of 2.7pc) the following decade. Lower wages, and in turn lower levels of pension savings, combined with weaker investment returns, mean the younger saver ends up with £40,997 less than their older counterpart, with a final pot worth £139,110 against £180,107.
Using historic market rates for annuities – insurance contracts that pay a guaranteed income for life – the research shows how much the savers would have to live on in retirement.