Annuity rates fall to record low
Average annuity rates, which determine how much income a pensioner receives in retirement, have fallen dramatically since August on the back of a sharp fall in gilt yields.
The latest drop in annuity rates means that the average annual pension income is now 1.2 per cent lower than its previous all-time low recorded in September shortly after the EU referendum.
The findings will be particularly disappointing to pension savers approaching retirement.
A 65-year-old with a pension pot of £50,000 would receive an average pay out of £2,237 if they bought a standard annuity today. The same person would have got £2,557 a year had they bought the annuity on 1 January.
Demand for annuities has declined since the introduction of pension freedoms in 2015, which give anyone aged 55 and over full access to their savings.
However, they are still the only product offering a guaranteed income for life.
Helen Morrissey, pension specialist at Royal London, said: “Once bought, annuities cannot be unwound and so anyone coming up to retirement needs to think carefully about whether now is the right time to purchase an annuity as their income will be locked in at this level for life.
“People have more flexibility now on how and when they take their retirement income and so it is worth speaking to an adviser about whether purchasing an annuity right now is really the best thing for them or whether they would be better off delaying the purchase in favour of using an alternative solution like income drawdown or even delaying taking a retirement income at all.”