Less than three weeks since the introduction of the new pensions freedoms, standard annuity rates have already collapsed to all-time lows, according to new figures from Moneyfacts.
After a disappointing 2014, in which the average annual income payable from a standard annuity fell by 5.7 per cent, 2015 has already seen an even more marked decline in annuity rates.
The average annual income payable on a single life standard level, without guarantee annuity for a 65-year-old, with a pension pot of £10,000 has fallen by 5.9 per cent since the beginning of the year and by 6.4 per cent for a £50,000 pension pot.
This latest drop in rates means that the average standard annuity pension income is now at its lowest ever level, surpassing the previous all-time lows recorded in November 2012, just prior to the introduction of gender neutral pricing in December 2012.
Richard Eagling, head of pensions at Moneyfacts, said that in many cases, retirees looking for a secure income now face the unenviable position of annuitising at the lowest point in the product’s history.
“This is particularly unfortunate for those individuals who may have deferred making a choice until the introduction of the pension freedoms but have since decided that an annuity is still the most suitable product for them.
He questioned whether there could now be a wave of new annuity business hitting the market at a time of record low rates, “in the same way that many individuals rushed to annuities before the introduction of gender neutral pricing, only to unwittingly fix incomes in at the previous all-time lows”.
Joint life annuity rates have been cut even more severely since the beginning of the year than their single life counterparts. The average joint life level, without guarantee pension annuity income (with no reduction on first death) for a male and a female aged 65 has fallen by between 6.7 and 6.8 per cent, depending upon purchase price, so far this year.
Enhanced annuity rates have proved to be slightly more resilient than standard annuities in 2015, although they have also seen sizeable reductions. The average enhanced pension annuity rate (level without guarantee) for an individual aged 65 has fallen between 5.3 and 6 per cent, depending upon the purchase price, since the start of the year.
This means enhanced annuity rates are now at their lowest levels since April 2013.
Mr Eagling added that the average potential uplift available through an enhanced annuity, compared with a standard annuity, is currently around 22 per cent, an extra level of income that could make a big difference in the current low annuity rate environment.