Annuity rates tumble again

28th October 2014

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Annuity rates have plunged to their lowest level in nearly a year, shaving hundreds of pounds off the income that many retirees will receive for the rest of their lives.

There was a perfect storm for annuities in the third quarter of 2014, with plummeting  gilt yields and lower demand for annuities due to Budget changes , according to the latest Moneyfacts Personal Pension and Annuity Trends Treasury Report.

The average annual income payable from a standard annuity falling by 2.7% at the £10,000 purchase price and by 3% at the higher £50,000 purchase price.

As a result, annuity rates finished Q3 2014 at their lowest level since November 2013.

The average standard annuity for someone with a £10,000 pot aged 65 is £521 per year payable annually.

Enhanced annuities, for people who have health conditions, smoke or drink, also fell. The average annual income payable from a level without guarantee enhanced annuity for a 65-year-old, based on a £10,000 pension pot, fell by 2.4% and by 1.8% based on a £50,000 pension pot.

The average enhanced annuity for someone with a  £10,000 pot is £632%

Richard Eagling, head of pensions at Moneyfacts said: “In what is proving to be a particularly testing time for the annuity market providers have once again reverted to more cautious pricing strategies.

“A fall in annuity rates of the magnitude that we saw in Q3 2014 is unusual, but can be explained by two main factors: a significant recent reduction in gilt yields and the much lower demand for annuities post-Budget.”

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