Annuity rates have collapsed to all-time lows just weeks after the new pension freedom reforms came into force, according to financial website Moneyfacts.co.uk.  The new reforms mean that pension savers are no longer required to buy an annuity, which gives a guaranteed income for life.

The research that show that 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%.

In January this year, for example, a 65-year-old with a £10,000 pension could have received £506 a year, now, they would get a payment of just £476 a year on average.  Meanwhile, someone with a £50,000 pension pot would have received an average annual payout of £2,727 if they had bought a standard annuity at that time.  But the same person buying an annuity now would typically get a yearly payout of £177 less, at £2,550.

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.

Moneyfacts said that enhanced annuity rates have been “slightly more resilient” than standard annuities in 2015 so far, although they are at their lowest levels since April 2013.  Enhanced annuity are offered to people who are in ill-health, such as smokers, and often have better rates as the people who buy them tend to have lower life expectancies.

The typical rate has fallen by 5.3% for those with a £10,000 pension and by 6% for a £50,000 equivalent.  A 65-year-old with a £10,000 pension could receive a yearly sum of £579 with an enhanced annuity, and someone with a £50,000 pension could get an average yearly payout of £3,055 typically.

The drastic cuts are being driven by a sharp drop in the yield from gilts – UK Government bonds that are used to back annuities – and reduced customer demand which makes providers charge more to compensate for the loss, according to Moneyfacts.

Annuity Advice

It is more important than ever to ensure you are getting the full value from your pension pot.  Be aware that you could qualify for an enhanced annuity if you have any lifestyle or medical conditions.  Annuities are the only way to secure a guaranteed income for life which means they could still be appropriate for many retirees.  Call us on +34 698 243 745 or Contact Us Today  if you would like information as to whether an annuity is best suited for you.
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We are completely independent, and can advise on a wide variety of QROPS pension schemes – we are not tied to any single provider, which means that we will recommend the scheme which meets your exact requirements and needs.

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