Alan Steel: Pensions constantly eroded for the past billion seconds

MY "E-MAIL of the week" asked if I knew how many zeroes there were in a billion. The authors claimed a billion is a difficult number to comprehend for most people, but did a decent job of putting it into perspective.

For example, they claimed that a billion seconds ago it was 1959. Having recently discovered the motto of the Royal Society is nullius in verba, which means don't just take anybody's word for it, I checked to see if they were accurate.

They weren't – a billion seconds ago it was 1979. That was a very significant year, though. That year the Conservatives swept to power, where they remained until 13 years ago, when New Labour replaced them. In a couple of weeks it could all change again.

When the Conservatives came in to power in 1979 they disbanded plans to compel employers and employees to contribute to a second private pension plan that would sit on top of state pensions. They went on to bring in their Freedom of Pensions idea, which led to swathes of people leaving their final salary schemes and going into private plans sold by smooth-talking salesmen chasing high commissions.

Things got much worse from 1997, when Gordon Brown, as chancellor, started a sustained attack on a range of tax breaks enjoyed by pensions, especially final salary schemes in the private sector.

The past 31 years of political interference of UK pensions has led to an increasing number of people being forced into some type of private pension. Without sufficient knowledge, they are put in charge of their own investments, building funds that have to produce income when they retire.

Final salary pension schemes were crucially important to most retirees. Having advised thousands of people since 1973, in my experience the majority of investors do not understand pensions, and they do not have any perspective on how much funds or income they require in retirement. In a final salary scheme, they didn't need that.

The end result is that the typical pension fund has few zeroes. Last year, industry statistics show, almost 12 billion of annuities were bought at retirement, with the average private fund buying an annuity of 25,000. Just 2 per cent of annuities purchased were inflation-proofed and 65 per cent of people buying annuities did not bother to shop around to see if they could improve their income. If they had bothered, estimates suggest up to a 17 per cent uplift in income.

Most people don't check if they can have better annuities because of their ill-health, and 80 per cent don't even bother buying a partner's pension to protect them if they die before their partner. Evidence shows the average benefits of those still lucky enough to be in final salary schemes are seven times higher than those of the self-employed, and 13 times higher than those people chucked out of final salary schemes into poorer alternatives.

And here's another frightening thought. If you have 500,000 of pension fund with which to buy an annuity, you're 60 years old and want an increasing pension with two-thirds pension to your partner in the event of your death, the best income you're going to get currently is 15,000 gross.

So if you want to have a decent retirement income, it doesn't really matter who wins the next election, you're on your own. So go and get the best independent advice you can, and make it sooner rather than later, because in a couple of weeks valuable rates of tax relief could be the next benefit to disappear.

• Alan Steel is chairman of Alan Steel Asset Management