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Annuity rates lower than ever

Rates down 45% from 15 years ago

Pension transfers disadvantages

Switching pension fund provider could cost you thousands if done the wrong way

New figures show that pension annuity rates have plummeted to an all-time low.

Research from Investment Life & Pensions Moneyfacts has uncovered that annuity rates have slumped further over the summer, representing a blow to anyone looking to secure a comfortable retirement.

The average rate for a 65-year-old man purchasing a standard level without guarantee annuity (based on a £10,000 purchase price) has decreased by 6.3% since last August. The equivalent female annuity has fallen by 5.6% over the past year.

The latest reductions mean that the average male annuity rate has dropped a staggering 45.5% over the last 15 years, whilst female rates have decreased by 41.8%. 

Annuity outlook bleak

Richard Eagling, editor of Investment Life & Pensions Moneyfacts commented: ‘With every passing month the outlook for those approaching retirement appears bleaker.

‘There has been a spate of annuity re-prices over the summer months which has unfortunately left rates at record lows. Tomorrow’s pensioners face a desperate battle to secure a comfortable retirement.’

Buying an annuity

Most people approaching retirement buy an annuity with the pension fund they have built up over their working life. The annuity then guarantees them an annual income, which they will receive every year up until they die. 

The rate attached to the annuity purchased by an individual decides the level of income they will subsequently receive from it. Therefore, depending on the annuity rate available to a consumer when they choose to retire, the ‘real’ value of their pension pot may be seriously affected.

Different kinds of annuities offer different benefits and it is important that individuals choose an annuity that reflects their needs. For example, some annuities are index-linked while others pay out a level amount each year. Meanwhile, enhanced annuities can be suitable for people with medical conditions, or smokers.

Alternatives to annuities

With such low rates, you could be better off not buying an annuity at all. Alternatives, such as income drawdown, might be worth considering. Your best bet may be to consult an independent financial adviser to give you the help and advice you need.

For more information on annuities and how they work, read the annuities explained guide. The Which? guide to planning your retirement also contains helpful advice that could help you prepare for the future. 

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