SAGA — Doing things properly

Pensions - a grim tale of two brothers

A report shows in stark detail how people retiring now suffer from today's low investment returns

Just when the Government is urging us all to save more for our retirement, the problems of doing so have been starkly illustrated by actuaries Watson Wyatt.

Its analysis shows that a man retiring 10 years ago who had saved £200 a month for 20 years could buy a decent pension. But someone retiring today who had saved exactly the same amount each month would get barely a quarter as much.

Take two brothers, George and Michael Phipps. George was born in January 1937 and started saving £200 in a with-profits pension fund when he was 40. In January 1997 he reached 60. His fund was worth £265,507 and for each £1,000 he got £77.40 a year pension - a total of £20,513. He considered that a fair deal.

His brother Michael was born 10 years later, in January 1947. He started saving at the same age and also put £200 a month into the same pension fund. This year he reached 60. But his fund was less than half as much as George's - just £112,100.

The insurance company blamed falling investment returns. And because people now live longer, he only received a pension of £41.50 for each £1,000. That double whammy of less money and a lower pension for each pound of it meant his pension was just £4,613 a year, less than a quarter of George's. Michael is not a happy man.