Shattered dreams

By TOBY WALNE, CHIEF MONEY REPORTER
Updated:

 

ALAN Johnson looked forward to taking a pension this summer and buying a new car to tour Europe with his wife Jeanne. Instead, he is phoning all his contacts in a desperate search for work.

Like thousands of others with personal pension plans, his hopes of retiring in comfort have been hammered by the recent stock market turmoil.

Former shipping broker Alan, 62, wanted to retire after he was made redundant in July last year and asked pension provider Norwich Union for a forecast of how much he would receive.

He was told £11,000 a year, but reckoned this would not be enough. So he held back in the hope of an upturn.

Since then he has asked for four more quotes, and each time the value of his fund has been lower - once by seven%.

A year ago, Alan believed his fund would be worth about £217,000. But now Norwich Union has told him it is worth nearly £40,000 less, and that £11,000 pension forecast has shrunk to just over £8,000.

Alan, of Belton, north Lincolnshire, says: 'To say that I feel bitter is an understatement. Every time I asked for a forecast of what my pension would be I received an even lower quote. It's a vicious circle. I feel totally helpless.

'I am now finally throwing in the towel and trying to go back to work in the hope that my pension fund will eventually stop free-falling.'

But life insurance analyst Ned Cazalet, of Cazalet Financial Consulting in the City, believes the gloom for Alan and other with-profits savers is far from over. He expects even deeper cuts unless stock markets improve dramatically.

Cazalet says: 'The financial strength of life offices has been sorely tested by falling stock markets.

'Many are merely testing the water with the cuts in policy values so far, and will have to follow with more.' Customers who want to give up their with-profits policies, whether pensions, bonds or endowments, and take their money early are suffering even harder blows, he says.

Under the label of market value adjustments (MVAs) or market value reductions (MVRs), many life offices are imposing exit penalties, including Norwich Union. Customers who want out will have to sacrifice 12% of their policy's value.

But Rob Kerry, a senior Norwich Union actuary, says this is only fair. 'We are not being mean,' he insists. 'We are protecting the interests of savers who stay in the fund by ensuring that those who quit or take early retirement do not walk away with more than their fair share.

'We believe that over time, the stock market will do well again. This means we must cut bonuses and maturity values now, so we can maintain the financial strength to stick with shares.'

• Exit penalties are the price of freedom

Most watched Money videos