Annuity rates – which determine the value of private pensions – saw their biggest monthly fall in three years last month, according to research undertaken by the information website Moneyfacts. It is stated that the average standard annuity rate fell by 2.6% during August alone.
The effect to anyone buying an annuity, or an income for life, is that they will potentially receive a lower pension. For example, someone cashing in their pension pot of £50,000 will now receive £1540 less over the next 20 years.
One reason for the fall is a reduction in gilt yields – the interest paid out on government bonds, which are used by insurance companies to calculate their liabilities. The interest rate, or yield, on 15 year gilts fell from 3.05% at the start of August to 2.7% by the end of the month.
The other reason is a falling demand for annuities, following the announcement of new pension freedoms from April 2015.
“Although many individuals approaching retirement will be looking to postpone their decision on how to take a retirement income until then, the significant fall in annuity income that we saw last month will be felt by those who require a guaranteed, secure income now,” said Richard Eagling, head of pensions at Moneyfacts.
Since the start of the year, annuity rates have fallen by 3.2%. Enhanced annuities – used by people who are at risk of an earlier death – were not as badly affected last month, falling by 1.3%.
At Portfolio Financial Consultancy Ltd we have many years’ experience of helping clients determine what is in their best interests. For those considering the possibility of locking in to a guaranteed income for life, we can help ensure that they are getting the best deal available, so please do not hesitate to contact us to discuss the options open to you.