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Annuity rate warning for soon-to-be retirees

Annuity rate warning for soon-to-be retirees

Category: Annuities

Updated: 20/06/2013
First Published: 12/01/2011

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 It is now over 6 months old so the content may be out of date.

Soon-to-be retirees have been told they must shop around when securing their retirement income after it was revealed annuity rates fell for the third consecutive year in 2010.

Research from showed that the average standard annuity rate fell by 2.7% last year, although the drop was less severe than the 8.7% reduction witnessed in 2009.

As a result, a male aged 65 with a pension pot of £10K buying a standard level annuity (without any guarantees) could have expected to receive an average annual income of £607 at the end of 2010. The same man retiring a year earlier would have been paid £624 a year.

On the same basis, a similar scenario is apparent for women, who will have seen the average income they receive drop from £584 to £568.

Enhanced annuities, which pay out larger incomes to people with certain medical conditions or lifestyle choices (for example, smoking), fell by 1.75%.

However, last year's drop would have been far greater had it not been for a late mini rally in rates.

Having taken a big hit during the summer and early autumn months, annuity rates enjoyed a welcome rise during the last two months of 2010, as bond yields started to rise.

With the so-called 'baby boomer' generation about to hit retirement, the big question concerns what the future might hold for annuity rates, and whether the recent revival might continue.

"Unfortunately, the recent annuity rate rally is unlikely to last much longer, and could ultimately prove nothing more than temporary respite from their downward trajectory," said Richard Eagling, editor of Investment Life & Pensions Moneyfacts.

"One of the key influencers of annuity rates are the yields on gilts and corporate bonds, and unless these continue their recent upsurge for a sustained period, annuity rates are likely to remain in the doldrums.

"This only makes it even more important that retirees shop around for the very best annuity deal that they can find."

If you're approaching retirement, our annuity best buy charts are an ideal starting point when searching for the best annuity rates. An online annuity planner service, such as that offered by Premier Retirement Services, should also be considered.

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