Annuity rates have declined by almost a third since the Bank of England launched its quantitative easing programme, research from Axa Life Europe has found.
According to ALE, a saver who used a £100,000 pension pot to buy an annuity would have been offered an annual income of £5,040 in Q2 2009 but only £3,580 in Q2 2013, representing a drop of 29 per cent.
Over 25 years, this difference between these two incomes will add up to £36,500.
In contrast, savers who converted their pension into an annuity in Q2 2007, when annuity rates were at their most recent peak, would have an annual income of £5,110.
Quantitative easing has pushed down the value of gilt yields from which annuities are paid and annual incomes have fallen as a result.
Simon Smallcombe, head of guaranteed distribution for Axa in the UK, said: “QE has been blamed as one of the main factors in pushing down annuity rates and when you look at the timing of the Bank of England’s programme and look at the annuity rates over that time, there is a clear trend of decreasing rates.
“The most useful step people between five and 10 years from retirement can take is to seek advice as early as possible. This allows the adviser to research all options available, such as unit-linked guarantees for people who want to protect their pension pot from falling annuity rates and negative market movements but stay invested to capture any growth at the same time.
“The ability to secure a guaranteed future retirement income and stay invested in the markets with the potential for growth can be a real alternative and does not rule out any option at the chosen retirement date in the future. Unlike annuities, unit-linked guarantees offer flexibility as policy holders can access and move their money if they choose to do so.”
