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Annuity rates at all-time low

Annuity rates at all-time low

Category: Annuities

Updated: 23/04/2015
First Published: 23/04/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Just 17 days into the new pensions regime, Moneyfacts can reveal that average annuity rates have collapsed to all-time lows, something that could further influence retirees' decisions when it comes to spending their pots.

Standard rates at record lows…

The research, from Investment Life & Pensions Moneyfacts, paints a worrying picture for the market. After a disappointing 2014, in which the average annual income payable from a standard annuity fell by 5.7%, 2015 has already seen an even more marked decline: the average annual income payable on a typical single life annuity for a 65-year-old with a £10,000 pension pot has fallen by 5.9% since the start of the year, while those with a £50,000 pension pot will have witnessed an even sharper decline of 6.4%.

This latest drop in rates means that average standard annuity pension income is now at its lowest ever level, surpassing the previous all-time lows recorded in November 2012. Those with a £10,000 pot will now secure an annual income of just £476, down from £506 had they arranged things in January, while those with a £50,000 pension will have lost out on even more (down from £2,727 to £2,550).

… but severe cuts across the board

Things aren't more positive elsewhere in the market, either. Enhanced annuity rates have seen similar cuts – the typical rate has fallen by 5.3% for those with a £10,000 pot and by 6% for a £50,000 equivalent, giving an annual income of £579 and £3,055 respectively – and are now at their lowest levels since April 2013, while joint life annuities have been hit even harder.

In fact, the average income from a joint life level without guarantee annuity (with no reduction on first death) has fallen by 6.7% on a £10,000 pot (to £399) and by 6.8% (to £2,185) on its £50,000 pot equivalent, and all in the space of a few months.

Richard Eagling, head of pensions at Moneyfacts, commented: "The prospect of securing a comfortable retirement has taken a further blow with news that standard pension annuity rates have hit an all-time low. In many cases, retirees looking for a secure income now face the unenviable position of annuitising at the lowest point in the product's history.

"This is particularly unfortunate for those individuals who may have deferred making a choice until the introduction of the pension freedoms but have since decided that an annuity is still the most suitable product for them."

There are suggestions that the market could experience a slight influx of business as retirees decide that this is the best course of action, but unfortunately, it means that those who waited until now will be unwittingly fixing their incomes at rock-bottom levels – and unfortunately, many of those will be retirees who have such small pots that opting for anything other than an annuity just doesn't make financial sense.

"The one saving grace for retirees is the enhanced annuity market where rates have been more resilient and have yet to fall to an-all time low," added Eagling. "The average potential uplift available through an enhanced annuity compared with a standard annuity is currently around 22%, an extra level of income that could make a big difference in the current low annuity rate environment."

This means it's more important than ever to ensure you're getting the full value from your pension pot. Always head to the open market to compare quotes, and if you have any lifestyle or medical conditions that could mean you qualify for an enhanced annuity, make sure to let your provider know. Annuities are the only way to secure a guaranteed income for life which means they could still be appropriate for many retirees, so if this sounds like an option, consult our annuity service to compare rates and get the income that suits you.

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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