Mercer’s DC Barometer shows how changes in annuity and investment markets, as well as contribution levels, can influence the expected retirement age and income of defined-contribution (DC) pension scheme members.
Comparing stock market conditions and annuity price movements at the end of December 2009 with the end of May 2010, Mercer found a sample scheme member planning for retirement may need to work around 15 months more in order to retire on the same income they expected based on conditions 5 months previously.
Steve Charlton, a senior DC consultant at Mercer, said: "Employees who purchase their annuities now will get a poorer deal than those who retired only a few months ago. This is because of significant increases in annuity prices due, in part, to the turbulent markets following the debt crisis in some European countries.
"The considerable impact that swings in markets and annuity prices can have on people’s retirement income highlights just how hard it is to control the outcomes of DC pension investments - particularly when faced with uncertainty in some of the world’s major economies.
"It’s important for employers to help their scheme members understand the risks involved with DC schemes so they can take appropriate action to protect themselves, in the interests of securing the maximum income in retirement.
"If the Coalition Government’s plans to increase the state pension age comes to fruition then the additional 15 months our sample member has to work would more or less coincide with the new state retirement age."
