Rates for pension annuities have a hit a new two-decade low.
If you take as an example a UK couple with a pension fun of £100,000, they could have expected to receive around £6,070 in April of this year. But now annuity experts are reporting that this figure for annual income is now only £5,860. Commenting on this bleak news, Billy Burrows from pension company Burrows & Cummins said that… ”…this is the first time rates have fallen below 6pc in the 20 years I have seen records for, and possibly longer, the development adds to the adverse effect of recent stock market falls on investors’ pension pots.”
Many of the UKs major pension annuity providers have cut their rates on the back of a sluggish performance in the markets. They include Canada Life, Prudential, Standard Life, Aegon and Legal & General. There are thought to be three main reasons why rates have fallen..
- A fall in bond yields (government gilts).
- Poor performance in investment funds.
- People living longer than ever before
As well as these factors which have had an adverse effect on rates, the new EU rules over ‘Solvency 2′ has lead many insurers to become “more conservative” in their pricing as they seek to bolster their own balance sheets.
Mr Burrows also noted that those who wanted to have the chance of a potentially higher annuity income should look at more flexible solutions. He cited “Pru’s Income Choice or a Flexible Annuity from MGM” which incur a higher risk than a standard annuity but allow for possible higher gains capital gains.