Annuity rates have fallen by 10 per cent since August and show no signs of stopping there, according to new figures from My Pension Expert.
The data was based on a 64-year old with a pension pot of £100,000 purchasing a single life policy, with quotes taken weekly from 12 August to 20 January.
Since the summer annuity rates have been falling at a dramatic pace and currently sit at the lowest level since retirement income adviser’s records began.
Back in September, research from Investment Life and Pensions Moneyfacts revealed annuity rates experienced their biggest monthly fall for three years during August, with figures showing the average annual income from a level annuity for a 65-year-old without guarantee, based on a £50,000 pension pot, fell by 2.6 per cent during the month from £2,874 to £2,797.
Mt Pensions Expert explained that since the Budget announcement on pension reform, annuity rates became progressively more volatile, with ups and downs persisting until the summer, when rates finally got off the seesaw and instead moved onto the slide.
The top standard rate is now down by 8 per cent since August and the top enhanced rate by 10 per cent, along with the top type II diabetes rate by 10 per cent, the top smoker rate by 12 per cent and the top rate for someone who is classed as obese by 12 per cent.
A 64-year old with a £100,000 pension pot who smokes ten cigarettes daily would have received an income of £7199 annually in August last year.
However if they chose to retire now, the best available rate is £6350 - a reduction of £849. When factoring in an average 20-year retirement, that equates to £16,980 in lost income.
Explaining the rapid fall in rates, the firm suggested that the continued fall in gilt yields, to a low of 1.90 per cent this month, has a direct impact, along with diminished demand meaning providers need to reduce rates in order to preserve the product’s profitability.
Scott Mullen, director at My Pension Expert, said that the findings demonstrate the volatility of the market.
“Rates are fluctuating on a daily basis, often by significant amounts. As our research reveals the difference in income received annuitising today versus last summer is staggering.
“It’s essential that those looking to purchase an annuity shop around for the best rate and make sure that it factors in their individual medical and lifestyle conditions; failure to do so would result in further losses of income.”
He added that speaking to an adviser will guarantee that the right product is selected, tailored to the specific needs of the individual, and at the best rate available.
peter.walker@ft.com
