Annuity rates fall for a fourth year in a row

Posted on January 11th, 2012 | Categories - Annuities

New research has shown that Annuity rates fell in 2011, the fourth consecutive year that a fall has been recorded.

The figures, produced by the financial information firm Moneyfacts, show that for a 65 year old male, buying a standard Annuity where the income will remain level, the Annuity rate dropped by 8.4% in 2011. The fall was slightly less for a female, at 7.7%.

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Whilst the figures will come as no surprise to anyone who has done an Annuity rates comparison recently, the size of the reductions will alarm many and were higher than those seen in 2010 when rates for both men and women fell by 2.7%.

The last time Annuity rates actually rose during a calendar year was 2007, when rates increased by 4.4%.

Gilt yields

Whilst the fall in Annuity rates in 2011 can be seen as part of a longer term trend, caused in most part by increased life expectancy, the principle reason for the reductions in 2011 has been the fall in gilt yields seen throughout the year.

Richard Eagling, Editor of Investment Life and Pensions Moneyfacts, said: “Unfortunately, by increasing the demand for fixed income instruments such as UK Government Bonds, the ongoing Eurozone crisis and the Bank of England’s Quantitative Easing programme have driven gilt and corporate bond yields down over the last twelve months, both of which underpin annuities. In the short term, a successful resolution of the European debt crisis is crucial to stabilising annuity rates.”

Massive drop in Annuity rates

The Annuity rates comparison also showed that over the past 16 years Annuity rates have dropped by a staggering 48.3% for men and 44.8% for women.

The falls mean a man, aged 65 in 1994, could have bought a level Annuity income of £1,076 for every £10,000 in his pension fund, in 2011 the figure has fallen to just £556 per year.

Further falls

Financial experts are predicting further falls in Annuity rates over the course of 2012 as Solvency II and the European Court of Justice ruling on gender discrimination in insurance contracts take effect.