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Annuity rates have fallen again: here's why
European regulation, increasing longevity and changes to underwriting have conspired to push down retirement incomes.
by Michelle McGagh on Aug 22, 2012 at 16:59
The income retirees can expect to get from their pensions pot has fallen 2.6% since July as annuity rates struggle against rising longevity and tougher regulation.
An annuity is the most common way to turn a pension pot into an income when you retire. The rate – or the amount of income – you are given depends on a number of factors, including how long the annuity company expects you to live.
According to Hargreaves Lansdown rates have fallen 2.6% since July, meaning a 65-year-old man with a £100,000 pension fund will be able to buy an income of £5,591 a year compared with £5,743 at the beginning of the July.
These figures stand in stark contrast to the income that would have been received in May 2003, when a 65-year-old man with a £100,000 pension pot would have received £6,400 a year.
Unfortunately for retirees there have been 14 annuity rate cuts in July and another nine in August.
Annuity income (per annum): Click to enlarge
Hargreaves Lansdown annuity index. Male, single life, five-year guarantee, level, monthly advance, £100,000 purchase price, top provider on the HL panel.
Hargreaves Lansdown's head of pensions research Tom McPhail said there are four main factors affecting annuity rates at the moment.
‘We have been consistently warning all year that we expected annuity rates to fall and for the time being we expect this trend to continue,’ he said.
The four factors hitting pension income:
More extensive use of underwriting
More about this:
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