Annuity rates continued to fall and last month were at their lowest since June 2013.
Iress’s third at-retirement report revealed that demand was 26.7 per cent lower in the last three months of 2014 than the previous quarter, as the trend of consumers delaying decision making until the radical pension freedoms are implemented in April was accentuated by the impact of the festive break.
Falling prospective incomes have contributed to this, with the average rate for a standard single life annuity falling to 5.17 per cent in December – the lowest since June 2013. Rates have broadly trended down in the year following their peak of 5.45 per cent in January.
Earlier this month, figures from My Pension Expert revealed that annuity rates have fallen by 10 per cent since August and show no signs of stopping there. 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.
As a result, December saw demand fall to its lowest level in at least two years, Iress said.
Furthermore, last year there was a 72 basis point difference between the best and worst rate available for a standard single life.
The average best rate stood at 5.65 per cent compared to an average worst rate of 4.93 per cent, which is equivalent to £444 in income per year for the average pot and would equate to a difference of more than £11,100 over a 25 year retirement.
Enhanced annuity take-up fell in the final quarter, with just 17 per cent of annuitants securing an enhanced product, compared to 29 per cent a year ago.
The average rate for a single life annuity for smokers is now 5.62 per cent, 0.45 per cent higher than for non-smokers – representing a difference of 8.7 per cent in annual income for an annuitant with the average pot size, Iress said.
The analysis of data from more than 150,000 advised annuity cases found that sales of single life annuity products via financial advisers fell by 30.1 per cent in 2014 compared with 2013.
Dave Miller, executive general manager for sourcing at Iress, said: “It is clear that many consumers are adopting a ‘wait-and-see’ approach, and delaying making decisions around their retirement income, opting to drawdown, or are waiting to cash out more of their savings.
“Providers, too, are waiting with bated breath for April, which we envisage will be a catalyst for innovative new, flexible product suites. In turn, as competition heats up – among annuity providers as well as those with investment products - this could support annuity rates.”
donia.o’loughlin@ft.com
