You are here: Home - Retirement - Retirement planning - News -

Annuities reach historic low point

Written by:
Annuity rates, the determinants of a pension’s guaranteed income, are on the verge of reaching a historic low point.

This means a retiree purchasing an annuity today will receive about 29 per cent less income than someone who retired five years ago.

The drop is partially attributable to British government bonds offering increasingly lower yields; speculation that the Bank Base Rate may fall yet further in the near future has placed increased strain upon them.

Annuity rates have been falling for some time, but there was a slight upwards tremor after George Osborne announced reforms to pension regulations in April last year; that Autumn, rates started to slide downwards again.

According to figures released today by Hargreaves Lansdown, the top annuity rate available to retirees at present is 5.456%, which would allow a 65-year-old to trade £100,000 in pension funds for an annual income of £5,456 for the rest of their life. Five years ago, this figure was £7,065.

However, rates could continue to drop. “Just because rates have fallen continuously for 10 years, doesn’t mean they can’t fall further,” said Tom McPhail, head of pensions research at Hargreaves Lansdown. “If you are set on buying an annuity, waiting for rates to rise again might not be a smart move. In fact, buying an annuity in April could well be a bad move in itself – we forecast that pension firms will be overstretched by new retirees this year, due to the reforms.”

McPhail is not the first industry figure to express disquiet at the ramifications of the new pension rules. As Your Money previously reported, both Royal London and Scottish Friendly, two of the UK’s largest pension firms, believe there could be trouble ahead. Click here to read more.

Related Posts

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Sainsbury’s shoppers can get money off fuel and bonus Nectar points this weekend

Sainsbury’s is offering customers 10p off a litre of fuel as well as an extra 150 bonus Nectar points on every...
Sainsbury’s shoppers can get money off fuel and bonus Nectar points this weekend

Homeowners turn to equity release to pay down debt

Around one-third of those who release equity from their homes do so to pay off credit cards and loans, accordi...
Homeowners turn to equity release to pay down debt

Tesco Bank to stop new mortgage lending

Tesco Bank has stopped new mortgage lending and is exploring options to sell its existing mortgage portfolio.
Tesco Bank to stop new mortgage lending

Ryanair jetting towards US flights for £10

Ryanair is on course to achieve its long-held ambition of offering transatlantic flights to the US – and the...

Investing in car parks: a good vehicle for income seekers?

As the search for income continues, many investors are turning to alternatives, with car parks becoming increa...

A quick guide to guarantor loans – in association with Guarantor Loan Comparison

Considering a guarantor loan or becoming a guarantor yourself? Read our essential guide...

Results round-up: Companies to watch this week

Mulberry and more will face the music this week.

Product launches of the week

Select Property Group, Schroders, Leeds Building Society and more have exciting news this week.

Money Tips of the Week

Read previous post:
Pension reform disaster? The industry weighs in

Royal London, one of the UK’s biggest pension firms, has warned that George Osborne’s new pension freedom reforms could be...