Annuity rates have fallen on average by 3.6 per cent since the UK voted to leave the European Union, leaving a 65-year-old buying an annuity today worse off than a 60-year-old buying one six months ago.
Analysis from Hargreaves Lansdown found today a 65-year-old with £100,000 could buy an annual income of £4,890.
That was an inferior income than someone five years younger - and therefore with a greater life expectancy - could have bought for the same amount just six months ago.
It was also 37 per cent less than the £7,855 a year a 65-year-old could expect to receive in 2008, before the financial crisis and subsequent monetary easing pushed interest rates to prolonged lows.
Hargreaves Lansdown’s head of retirement Tom McPhail said annuity rates were “disappearing off the bottom of the chart” and even though rates are now at historic lows, “there is no certainty whether or when rates will go back up again”.
Rate changes post Brexit: Provider | Change | Date |
LV= | Down | 24-Jun |
Just Retirement | Down | 25-Jun |
Retirement Advantage | Down | 25-Jun |
Aviva | Majority down | 28-Jun |
Legal & General | Down | 29-Jun |
Canada Life | Down | 30-Jun |
Standard Life | Down | 30-Jun |
Retirement Advantage | Down | 02-Jul |
Legal & General | Down | 04-Jul |
Just Retirement | Majority down | 06-Jul |
Hodge Lifetime | Down | 07-Jul |
Retirement Advantage | Down | 08-Jul |
Canada Life | Down | 08-Jul |
Aviva | Majority down | 08-Jul |
Last week, Canada Life, Standard Life and Aviva all cut their annuity rates, after 10-year gilt yields tumbled to below 1 per cent in the wake of the Brexit vote.
He pointed out that anyone who delayed buying an annuity in expectation that rates would increase would probably be worse off today.
However, the fact today’s rates are less than in the past was not a good reason to put off buying an annuity.
“For many investors, a mix and match strategy, putting some of their pension into an annuity and some into drawdown, may well be the best approach.
“As always, anyone buying an annuity should shop around for the best possible deal for their circumstances; it’s particularly important to provide health and lifestyle details to try and boost the income on offer.”
Christopher Foster, a financial adviser with Pennines IFA, said the plummeting annuity rates were not a direct concern, because very few clients were buying annuities post pension freedoms.
However, he said the general downward movement in fixed income was a concern.
Mr Foster said: “Gilt yields are just going down and down and down. It’s a matter of waiting to see how it affects the fixed income market in general.”
james.fernyhough@ft.com
