Annuities: Annuity rates fall to lowest level for years


Annuity rates fall to lowest level for yearsA new survey has confirmed what many people who retired in 2012 probably already knew, that Annuity rates have fallen to alarmingly low levels, however, there is some good news for women coming up to retirement.

According to Moneyfacts, the financial information provider, the Annuity rate for a 65 year old man plummeted by 11.5% in 2012, the largest drop since 1998 and a massive blow to would-be retirees, who have already had to cope with volatile stock markets since the financial crisis, rising inflation and low interest rates.

The falls in Annuity rates in 2012 is part of a wider trend, which has seen Annuity rates fall in 15 out of the last 18 years.

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The primary reason for falling Annuity rates in years gone by has been longer life expectancy, however, over the past couple of years falling gilt yields have accelerated the reduction in Annuity rates. Although many retirement experts have pointed out that Annuity rates have actually fallen faster than gilt yields, leading to accusations that some Annuity providers are reducing rates faster than is necessary to increase their profit margins.

Hope for women?

Moneyfacts has also revealed that Annuity rates for women have risen slightly over the past month, after the introduction of the EU Gender Directive, which forces Annuity providers to offer the same rates for men and women.

Previously women have received lower Annuity rates than men due to their longer life expectancy; however, rates now have to be the same for men and women. This change has pushed female Annuity rates up by between 2.8% and 6.8%, depending on age and other individual circumstances. At the same time the Annuity rate for a 65 year old man has dropped by 2.7%.

What is an Annuity?

An Annuity is the most popular option for turning a pension pot into an income in retirement.

An Annuity is generally bought when an individual reaches retirement age and needs to start taking an income from their pension fund. It provides a guaranteed income for life, which may continue to a partner or spouse, if the option to do so is selected at outset.

If you are approaching retirement, experts recommend shopping around to find the best Annuity rate and also checking whether or not you qualify for an Enhanced Annuity , which could increase the level of income you get by taking into account health and lifestyle factors. You can get an idea of the Annuity rate you will qualify for by using an online pension Annuity calculator such as the one which can be found by clicking here.

With Annuity rates falling so far and so fast, many would-be retirees are considering alternative options such as Income Drawdown, an Investment Linked Annuity or a Fixed Term Annuity, although these options are also affected by falling gilt yields and generally carry more risk than a traditional Annuity.

Our team of Independent Financial Advisers in Nottingham are experienced in developing retirement income strategies for clients the length and breadth of the UK. If you are approaching retirement and would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email