Unfortunately, we are currently seeing UK pension annuity rates at record lows. The opportunity of getting a good retirement income have taken a bit of a blow of late as news indicates that pension annuity rates have hit an all time low. A pension annuity is effectively a guaranteed income for life paid by an insurance company (the annuity provider) and is bought with the proceeds of a pension fund from an employer’s pension scheme or a personal pension plan. Naturally the higher the value of the pension fund the higher the retirement income, though not as high as previously thanks to these lower annuity rates.
Research out from Investment Life & Pensions Moneyfacts (ILPM) has revealed recently that after holding firm during the summer months, annuity rates have fallen steadily over the last couple of months. The average rate for a male aged 65 buying a level without guarantee annuity (based on a £10,000 fund) has decreased by 3.3% since September, whilst the equivalent female annuity rate has seen a 3.6% reduction.
The latest reductions in pension annuity rates mean that the average male rate is down by around 10.5% compared with twelve months ago, whilst female rates haven fallen by around 10.9%. Over the last 15 years the drop is even more severe, with male rates now 43% lower and female rates 40% lower. Commenting, Richard Eagling, editor of ILPM, said that given that the stockmarket recovery has recently increased the size of many pension funds, it is disappointing that falling pension annuity rates have had an adverse impact on the retirement income being realised. Part of the problem is the low gilt yields that we are still witnessing, which are still well below last year’s levels.
Since the purchase of a pension annuity is a one-off transaction, it is vital that retirees shop around for the best deal for their money. Although under the Open Market Option (OMO), a retiree is not required to purchase an annuity from the pension provider with whom they made their pension savings, in reality, relatively few opt to move their money and find a better deal elsewhere. Richard Eagling added that with few signs that the recent round of UK annuity rates reductions is at an end, the priority must be to maximise the level of retirement income received, and, for most retirees this will only be achieved by shopping around to obtain the best annuity rates and exploring the open market option. The difference between the highest and lowest annuity rates can be as much as 13%. The potential uplift for those in ill health or who smoke and therefore qualify for an enhanced annuity is even higher.
