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Retirement Distress as Annuity Rates Hit All Time Lows

Personal_Finance / Pensions & Retirement Aug 31, 2010 - 05:15 AM GMT

By: MoneyFacts

Personal_Finance

The prospects of securing a comfortable retirement have taken a further blow with news that pension annuity rates have hit an all time low.

Research from Investment Life & Pensions Moneyfacts has revealed that annuity rates have fallen steadily over the summer months following a spate of re-pricing activity amongst providers.


The average rate for a male aged 65 purchasing a level without guarantee annuity (based on a £10K purchase price) has decreased by 6.3 per cent since last August, whilst the equivalent female annuity has seen a 5.6 per cent reduction over the past year. (see table 1).

The latest reductions mean that the average male annuity rate has dropped by a massive 45.5 per cent over the last 15 years, whilst female rates haven fallen by 41.8 per cent (see table 2).

Table 1: Falling pension annuity rates over the last twelve months

 

Average
annuity rate
Male aged 65

Average
annuity rate
Female aged 65

26 August  2009

£647

£605

26 August 2010

£606

£571

1 year change

-6.3%

- 5.6%

Figures show gross annual annuity payable monthly in advance. Figures based on an annuitant aged 65 buying a standard ‘level without guarantee' annuity for a purchase price of £10K.
Source: Investment Life & Pension Moneyfacts 26.8.2010

Table 2: 15 years of falling pension annuity rates

 

Average
annuity rate
Male aged 65

Average
annuity rate
Female aged 65

26 August  1995

£1,111

£982

26 August 2010

£606

£571

15 year change

- 45.4%

-41.8%

Figures show gross annual annuity payable monthly in advance. Figures based on an annuitant aged 65 buying a standard ‘level without guarantee' annuity for a purchase price of £10K.
Source: Investment Life & Pension Moneyfacts 26.8.2010

 

“With every passing month the outlook for those approaching retirement appears bleaker,” commented Richard Eagling, Editor of Investment Life & Pensions Moneyfacts. “There has been a spate of annuity re-prices over the summer months which has unfortunately left rates at record lows. In a few months time the first baby boomers will hit retirement. Often perceived as the lucky generation, they are likely to face a rude awakening when they come to secure their retirement income via an annuity. With gilt yields still low and life expectancy increasing we can expect annuity rates to fall further still. Tomorrow’s pensioners face a desperate battle to secure a comfortable retirement.”

www.moneyfacts.co.uk - The Money Search Engine

Moneyfacts.co.uk is the UK's leading independent provider of personal finance information. For the last 20 years, Moneyfacts' information has been the key driver behind many personal finance decisions, from the Treasury to the high street.


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