Pension annuity rates plummet 45%

| December 9, 2009
Pension annuity rates plummet 45%

Newly retired pensioners on an annuity pension are receiving nearly half the income of those who retired 15 years ago, research has found.

Annuity rates have hit record lows, plummeting by 45% since 1994.

Annuities are used by people with defined contribution pensions, or personal pensions, to convert their savings into a retirement income.

A 65-year-old man will now receive only £625 per year for every £10,000 he has saved, down from an annual income of £1,145 in 1994.

This rate is 11% lower than 12 months ago.

“Given that the stock market recovery has recently boosted the size of many pension pots, it is disappointing that falling annuity rates have had an adverse impact on the retirement income that can be achieved,” said Richard Eagling, of Moneyfacts, who conducted the research.

“Part of the problem is the low gilt yields that we are seeing, which are still well below last year’s levels.”

Martyn Saville, of consumer advice group Which?, added: “The continuing fall in annuity rates makes it more important than ever to shop around when buying an annuity.”

“If you have a money purchase pension fund, you don’t have to buy an annuity from your pension fund provider when you retire – but, unfortunately, far too few people currently exercise the Open Market Option and shop around for the best deal.”

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