Millions of Britons due to retire over the next few years face a 'double whammy' that risks seeing £11.5 billion wiped off their retirement funds, according to a new report by the Saga Foundation.
This figure takes in the impact on pensioners of tax and benefit changes, including the freezing of age-related allowances from April 2013 and the reduction in winter fuel payments, alongside rock bottom interest rates and three rounds of quantitative easing.
Compiled for Saga by experts from the Centre for Economics and Business Research, the report concludes that the changes will cost pensioners an average of £1,318 each by 5 April 2014.
Dr Ros Altmann, director general of Saga, says: "Pensioners are being hammered. They didn't cause our economic meltdown yet they have been paying a heavy price as we try to fix it and they face an even tighter financial squeeze in future.
"Those retiring now are the biggest losers in life's pension lottery as tax and benefit changes will compound the misery wreaked by paltry savings rates and overshooting inflation." The report shows that the 40% of single pensioners who sit in the lowest income bracket are forced to get by on just £8,034 a year with couples living on just £13,883. The average income of the next 40% of pensioners is £13,104 for single households and £23,998 for couples, while even the wealthiest 20% typically only receive £20,332, well below the average national income.
Altmann adds: "Instead of pumping hundreds of billions of pounds into financial markets and bank balance sheets it would have been much better sending cheques to everyone to encourage them to spend.
"If older generations felt confident again, they would splash out and boost economic growth. If we keep hammering them, these grey pounds will be wasted." Alliance Trust Research Centre's study of inflation rates affecting different age groups shows that over the past two years, pensioners have suffered a higher rate of inflation.
Over the past two years, those aged 65-74 and those households aged 75 and over have faced an inflation rate averaging 4.4%, higher than the official Consumer Prices Index average of 3.8%.
A spokesperson for Alliance Trust says: "This is simply because these households allocate a larger proportion of their budgets to utilities and food, areas that have seen elevated levels of inflation in recent years. The over 75-year-old households, for example, allocate almost 17% of their budgets to food, higher than any other age group." With little prospect of rates on savings accounts rising coupled with the gloomy economic outlook, pensioners are particularly vulnerable in the current climate.
Michelle Mitchell, Age UK's charity director general, says: "Many of those on a low income who had managed to build up a small retirement pot are facing a significant loss in savings due to historically low interest rates." However, she adds that conditions could improve, saying: "Future pensioners should benefit from the government's plans to bring in a flat-rate state pension that aims to make the system more straightforward and easier to navigate.
"But the needs of the 1.7 million pensioners currently living in poverty must not be overlooked by the reforms and the government should be working harder to find ways to ease their hardship. Too many older people are put off by the process of claiming benefits or are simply unaware that they are entitled to extra help, which could have a huge impact on their finances and quality of life." This article was written for our sister magazine Money Observer Vote in the Consumer Opinion Survey and get a free copy of Moneywise