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The income from defined-contribution pensions is less than pre-recession

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The value of retirement incomes from defined-contribution (DC) pensions are substantially lower than pre-recession levels.

According to Aon Consulting, despite the 40% recovery in stock markets since they hit the bottom a year ago, a DC scheme member's £100 invested before the onset of the recession is still worth less than the original sum in real terms.

Likewise, the projected retirement income - reflecting changes in annuity rates as well as equity markets - for workers at different stages of their career remains lower than it was over two years ago.

The Aon DC Index follows the income in retirement of individuals at different ages who contribute 10% of a £25,000 salary to a DC arrangement and have an existing fund (valued as at September 2007) of £15,000 for age 30 and £150,000 for ages 55 and above.

As the one-year anniversary of stock market lows passed during March, the value of DC pensions has rebounded strongly but the scale of losses to pensions during the downturn is illustrated by the fact that £100 invested in Sept 2007 is still only worth £97 today.

Based on data collected at the end of February 2010, the projected retirement income of typical DC pension investors at different ages is as follows:

30-year old: £20,460 (against £22,612 in September 2007)

60-year old: £11,589 (against £15,088 in September 2007)

65-year old: £8,525 (against £11,304 in September 2007)

Helen Dowsey, principal at Aon Consulting, said: "We have seen a major recovery for DC pensions but this does not mean they are back to where they were - it's a 40% recovery based on a lower starting point. In absolute terms, a member's £100 invested in September 2007 is still not worth £100 now. The underlying message is that pension investors have to take a long-term view."