New data produced by Moneyfacts.co.uk has found that rates for annuities have been continuing to fall in 2010. Following a lackluster summer, September rates have experienced the biggest monthly fall for 12 months. Taking the typical case of a 65 year old man buying an annuity with a £10,000 pot – rates fell by just over 1% to £597 from £604. Moneyfacts.co.uk rightly point out that one of the contributory factors driving the downward pressure on rates is the fact that gilt yields remain stubbornly low at 3.04%.
Richard Eagling from Moneyfacts.co.uk described the news as a “hammer blow to the hopes that tomorrow’s pensioners“. Rates have now fallen by over 40% since the mid 1990′s through a combination of everyone living longer, poor stock market returns and the poor performance of gilt yields. The imminent introduction of Solvency II rules are set to heap more misery on would be annuitants.
What all this miserable news does do however, is highlight once again the need to utilise the Open Market Option (OMO), also known as shopping around for an annuity. According to a recent study from Aviva, around around 40% of people don’t shop around at all, meaning they could potentially be missing out on a higher retirement income.
There is some positive news though, the stock market has started to shows signs of improvement according to Hargreaves Lansdown. According to Tabitha Reed…”stock markets reached a 2 year high this month. This news is particularly welcome for investors waiting to retire. It could mean their pension pots go that little bit further. Quite simply, more money in the pension equals more retirement income.“