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29 Apr 2015

Pension Annuity Incomes Drop To Their Lowest Ever

A recent pensions report has discovered that the average annual income offered by standard annuity has reached an all-time low, dropping by 6.4% since the beginning of 2015, The Telegraph reports.

The news comes in the wake of one of the biggest pensions overhauls in decades, so represents a major blow to savers who were expecting to see their savings prospects improve under the new legislation.

Moneyfacts compared current annuity rates to those of around 30 years ago, when the modern annuity market first began. It found that the average standard annuity income for a 65-year-old with £10,000 in their pension pot has fallen by 5.9% since the start of the year; for those with £50,000 saved up, this plunged by 6.4%.

As an example, in January this year a 65-year-old with £50,000 saved up would have received an average yearly payout of £2,727, on a standard annuity. But despite the new rules meaning that savers no longer have to buy annuity, the findings show that since the reforms, this same person would now get an annual payout of £2,550 - £177 less than before.

For the saver with £10,000 in their pot, their annuity payout has fallen from £506 a year before the reforms, to just £476 now.

Commenting on the findings, Moneyfacts´ head of pensions Richard Eagling, stated that “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.”

The article notes that people considering buying an annuity who either smoke or have poor health could consider getting an enhanced annuity. These often have better rates as those on them generally have lower life expectancies; and they have proven to be “slightly more resilient” than standard annuities, according to Moneyfacts.

Copyright © M2 Bespoke 2015

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