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Saturday, May 2, 2015

Annuity rates hit all-time low as pension freedoms introduced

Average annual income on offer from a standard annuity for a 65-year-old with a £10,000 pension pot plunges by 5.9% since start of year
Savers who decided to wait for the pension freedoms but still to decide to go for an annuity may have a less than comfortable retirement. Photograph: Andrew Lever/Alamy
Savers’ hopes of securing a comfortable retirement have been dealt a blow as standard annuity rates have collapsed to all-time lows just weeks after new pension freedoms have come into force, according to a financial website.
The average annual income on offer from a standard annuity for a 65-year-old with a £10,000 pension pot has plunged by 5.9% since the start of the year and for someone with a £50,000 pension pot it has fallen even more sharply, by 6.4%, research from Moneyfacts has found.

Researchers, who looked back to when the modern annuity market started around 30 years ago, said the latest rate falls mean that the average standard annuity pension income has reached its lowest ever level.
The fall comes just weeks after the launch of new flexibilities for the 320,000 people retiring every year with a defined contribution (DC) pension.
The changes mean that pension savers are no longer required to buy an annuity, which gives a guaranteed retirement income, with their pot, although some people will still want to in order to help ensure that they do not out-live their savings.
People can now take money out of their pots as they wish, subject to their marginal rate of income tax.
Moneyfacts’ findings will be a particular disappointment to people who put their retirement plans on hold in order to wait for the pension freedoms, which came into force on 6 April, but who may still end up deciding that an annuity would be the best option for them.
In January, for example, a 65-year-old 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.
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But the same person buying an annuity now would typically get a yearly payout of £177 less, at £2,550. A 65-year-old with a £10,000 pot could have received £506 a year if they had bought their standard annuity in January. Now, they would get a payment of just £476 a year on average.
People considering buying an annuity may want to think about whether they would be eligible for an enhanced annuity. These 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.
Moneyfacts said that enhanced annuity rates have been “slightly more resilient” than standard annuities in 2015 so far.
A 65-year-old with a £50,000 pot could get an average yearly payout of £3,055 with an enhanced annuity and someone with a £10,000 pot could receive a yearly sum of £579 typically, Moneyfacts said.
The new all-time low for standard annuity incomes surpasses a previous rock bottom level for annuities which was recorded in late 2012, just before firms were banned from taking gender into account when pricing products such as car insurance, life insurance and retirement products such as annuities.
Moneyfacts said that lower demand for annuities in the wake of the pension freedoms and a sharp fall in gilt yields, which are a major influence on annuity rates, were factors behind the latest downturn.
Richard Eagling, head of pensions at Moneyfacts.co.uk, said: “The prospects of securing a comfortable retirement have taken a further blow with news that standard pension annuity rates have hit an all-time low.
“In many cases, retirees looking for a secure income now face the unenviable position of annuitising at the lowest point in the product’s history.
“This is particularly unfortunate for those individuals who may have deferred making a choice until the introduction of the pension freedoms but have since decided that an annuity is still the most suitable product for them.”

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