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

Annuity rates plunge to new lows: £100k pension pot gets £5k annual income

Written by: Paloma Kubiak
Annuity rates have fallen by more than 3% in the past two-weeks following the result of the EU referendum.

Since the Brexit result, 14 negative rate adjustments have been announced, including from Aviva, Just Retirement and Retirement Advantage.

The best open market rate for guaranteed income for life (annuity) for a 65-year-old has fallen by 3.59%, meaning a standard terms policy offers an income of just £4,890 on a £100k fund.

More shocking is the fact that at the beginning of the year, someone five years younger at age 60 could have got a better deal than a 65-year-old today.

A 60-year-old in January 2016 with a £100k pot could have bought an income of £4,930 which means they would have potentially received five years’ worth of extra income paid at the same rate as the 65-year-old would get today.

In comparison to the rates offered eight years ago, a 65-year-old gets 37% less for their annuity as in July 2008, a 65-year-old with £100k could buy an income of £7,855. However, the average pension fund has risen 58.9%.

Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: “Annuity rates are disappearing off the bottom of the chart. Just six months ago a 60-year-old could get a better deal than the terms now being offered to a 65-year-old.

“Even though rates are now at historic lows, there is no certainty whether or when rates will go back up again. It is also important to note that in recent years, anyone who decided to delay buying an annuity may well be worse off today.”

So should you buy an annuity today?

McPhail said the answer is not to delay doing so just because today’s rates are lower than in the past.

“For many investors a mix and match strategy, putting some of their pension into an annuity and some into drawdown, may well be the best approach. As always, anyone buying an annuity should shop around for the best possible deal for their circumstances. It’s particularly important to provide health and lifestyle details to try and boost the income on offer,” he said,

The terms of a quote from an annuity company are usually guaranteed for between two and four weeks.

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.

Big flu jab price hikes this winter: Where’s cheapest if you can’t get a free vaccine?

Pharmacies, supermarkets and health retailers are starting to offer flu jabs ahead of the winter season, but t...

Is now the time to fix your energy deal?

Fixed energy tariffs all but disappeared during the energy crisis. But now they are back with an increasing nu...

Everything you need to know about the pension triple lock

Retirees are braced to receive another bumper state pension pay rise next year due to the triple lock mechanis...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

The best student bank accounts in 2023: Cash offers, tastecards and 0% overdrafts

A number of banks are luring in new student customers with cold hard cash this year – while others are compe...

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Money Tips of the Week