Annuity rates have climbed backed to pre-Brexit referendum levels after reaching their lowest point in September 2016, with ten rate increases since the beginning of May.
A £100,000 pension pot now buys a level income of £5,200 for a 65 year old compared to £5,155 immediately before the Brexit referendum. This figure is based on a single life, non-increasing income.
Nathan Long, senior pension analyst at Hargeaves Lansdown, said the referendum result saw annuity rates drop on the back of a fall in the bond yields used by insurance companies to back their annuity contracts.
“Other factors play a part in annuity rates, such as life expectancy and annuity providers’ appetite for new business, but the bond yields are the key determinant.
He added: “Annuity sales remain lower following pension freedom. This is primarily caused by the ability under income drawdown to pass on accrued pensions on death and the fact many retirees perceive annuities as offering poor value as they still anchor to higher historic bank interest rates.
“There remains demand for guaranteed income, with Financial Conduct Authority data showing more people purchase an annuity than opt for income drawdown after the age of 65.”
Steve Carlson, chartered financial planner of Caerphilly based Carlson Wealth Management forecast a slight reversal in annuity sales, "if people realise that it¹s not an either or choice between an annuity and drawdown".
"A blended approach of both to give some guaranteed income and some flexibility can be a good compromise.”
Tom Selby, senior policy analyst at A J Bell, said: "While it is good for those seeking a guaranteed income that rates are edging up, for many the deals on offer still won't present an attractive retirement income option.
"The greater flexibility and tax-planning opportunities created by the pension freedoms means far more people now go into drawdown than buy annuities. However, annuities remain the safest way to guarantee an income in retirement for those who do not want to take any risk with all or part of their pension pot.
"It is therefore vital that a well-functioning, competitive annuity market continues to exist alongside the thriving drawdown market."
Scott Gallacher, adviser at Leicester-based Rowley Turton, added: "Annuities are still a valuable insurance against living too long and many cautious clients don’t want the risks and worry associated with pension freedoms and drawdown. Unless annuity rates rise significantly I expect annuity sales will remain low. However there will arguably always be a place for annuities for the more cautious."
"Shopping around for the best annuity remains imperative, as more than six in 10 annuities are uplifted because of health or lifestyle."
