It’s been a tempestuous time for annuity rates ever since the announcement of the pension revolutionthat was unveiled during the March Budget. Rates became progressively more volatile, increasing one week only to fall the next. This back and forth movement continued for months until the summer arrived when annuity rates finally got off the seesaw and instead moved onto the slide.
Since the summer annuity rates have been falling at a dramatic pace and currently sit at the lowest level since My Pension Expert’s records began. This has seen the top standard rate fall by 8% since August 2014 and the top enhanced rate by 10%. The top type II diabetes rate has also fallen by 10%, the top smoker rate by 12% and the top rate for someone who is classed as obese by 12%. [1]
A 64 year-old with a £100,000 pension pot who smokes ten cigarettes daily would have received an income of £7199 yearly back in August last year. However if they chose instead to retire now then the best available rate is £6350 which is a £849 reduction. When factoring in an average 20 year retirement, that equates to £16,980 in lost income. [1]
There are a number of reasons why annuities are falling so rapidly. Gilt yields continue to tumble, having fallen to a low of 1.90% this month which directly impacts upon annuity rates as the two are intrinsically linked. The diminished demand for annuities further exasperates the situation as it has caused providers to counter by reducing rates in order to preserve the product’s profitability.
Scott Mullen, Director at My Pension Expert commented;
“What these findings demonstrate is just how volatile the annuity market is currently. Rates are fluctuating on a daily basis, often by significant amounts. As our research reveals the difference in income received annuitizing today versus last summer is staggering. It’s essential that those looking to purchase an annuity shop around for the best rate and make sure that it factors in their individual medical and lifestyle conditions. Failure to do so would result in further losses of income.
“We would however always recommend seeking advice when approaching retirement. Thanks to the Budget there are now even more options open to retirees beyond simply taking out an annuity, although this additional choice has led to the retirement process becoming more complicated than ever. An adviser can act as a guide throughout the procedure and ensure that the right product is selected, tailored to the specific needs of the individual at the best rate available.
[1] All figures based on a 64 year old with a pension pot of £100,000 purchasing a single life policy.
Figures based on quotes taken weekly from the 12/08/14 to 20/01/15.
Enhanced = smoker (10 cigarettes daily), drinker (52 units weekly), suffers from high blood pressure
Smoker = smokes ten cigarettes daily
Obese = 5ft 10” individual weighing 20st
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