Pensions  

Annuity rates hit by falling gilt yields, research says

Annuity rates hit by falling gilt yields, research says

Annuity rates have been hit by the continuing fall in gilt yields during the last quarter of 2014, research has shown.

The figures from the latest Moneyfacts Treasury Report: Personal Pension and Annuity Trends show rates across standard and enhanced sectors have seen heavy reductions.

Richard Eagling, head of pensions at Moneyfacts, said: “The ability of providers to withstand the downward pressure on annuity rates being exerted by lower gilt yields has been curtailed by the reduced demand for annuities since the 2014 Budget, which shows no signs of abating.

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“As a result, annuity rates finished 2014 at their lowest levels since July 2013.”

 

Average standard annuity rate Age 65

(£10K purchase price)

Average standard annuity rate Age 65

(£50K purchase price)

Q3 2014

£521

£2,799

Q4 2014

£506

£2,727

3-month change

-2.8%

-2.5%

Figures show gross annual annuity payable monthly in advance. Figures based on an annuitant aged 65 buying a standard level without guarantee annuity

Source: Moneyfacts Treasury Report: Personal Pension and Annuity Trends. 22.1.2015


Based on a standard level without-guarantee annuity, the figures show that the average annual income for a 65-year-old with a pension pot of £10,000 fell by 2.8 per cent during Q4 2014, and by 2.5 per cent for a £50,000 pension pot.

The report also revealed that a record volume of annuity re-pricing activity had taken place over the course of 2014.

Through the year, all providers cut rates across the range of annuity types and options with the average yearly income payable from a standard level without-guarantee annuity for a 65-year-old falling by 5.7 per cent at both the £10,000 and £50,000 purchase points.

With enhanced annuities, rates were cut more severely than standard annuities.

The average yearly income payable from a level without-guarantee, enhanced annuity for a 65-year-old, based on a £10,000 pension pot, fell by 3.1 per cent and by 2.9 per cent on a £50,000 pension pot.

Last week, Aviva’s 20-page longevity report, Making Your Money Last in Retirement, found that many people could be underestimating their life expectancy, with significant financial consequences.

It said: “Those people estimating they need £100,000 of private pension savings to top up their other income, such as state pension, could actually need about £150,00 if they had accurately predicted their life expectancy.”

Adviser view

Kevin Croker, of Derbyshire-based Crokers Financial Planning, said: “Annuities remain a good proposition in that there are clients who have a very cautious approach about how they want to receive their income.

“But it can be very disappointing for clients when annuities rates have been reducing.”