The prospects of securing a comfortable retirement have taken a further blow with news that pension annuity rates have hit an all time low.
A pension annuity is essentially a guaranteed income for life paid by an insurance company and is bought with the proceeds of an employer's pension scheme or personal pension.
Research from Investment Life & Pensions Moneyfacts has revealed that after holding firm during the summer, annuity rates have fallen steadily over the last two months.
The average rate for a male aged 65 purchasing a level without guarantee annuity (based on a £10K purchase price) has decreased by 3.3 per cent since September, whilst the equivalent female annuity has seen a 3.6 per cent reduction.
The latest reductions mean that the average male annuity rate is down by 10.5 per cent compared with a year ago, whilst female rates haven fallen by 10.9 per cent. Over the last 15 years the drop is even more remarkable, with male annuity rates now 43 per cent lower and female rates 40 per cent lower.
"Given that the stock market recovery has recently boosted the size of many pension pots, it is disappointing that falling annuity rates have had an adverse impact on the retirement income that can be achieved," said Richard Eagling, Editor of Investment, Life & Pensions Moneyfacts.
"Part of the problem is the low gilt yields that we are still seeing, which are still well below last year's levels."
Since the purchase of an annuity is a one-off transaction, it is vital that consumers shop around for the best deal for their money. Although under the Open Market Option (OMO), an individual is not required to purchase an annuity from the provider with whom they made their pension savings, in reality, relatively few take advantage of the opportunity to switch.
Richard Eagling added: "With few signs that the recent spate of annuity price reductions is at an end, the priority must be to maximise the amount of retirement income received.
"For most consumers, this will only be achieved by shopping around to obtain the best price for their annuity and exploring the open market option. The difference between the highest and lowest standard annuity rates can be as much as 13 per cent. The potential uplift for those in ill health who could qualify for an enhanced annuity is even higher."
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