Any would-be retirees hoping for a break from falling Annuity rates will need to think again following the publication of a new report which shows record breaking falls in Annuity rates.
The Moneyfacts Treasury Report: Personal Pension and Annuity Trends makes depressing reading for anyone approaching retirement, although people who bought an Annuity earlier in the year may well feel vindicated by their decision not to delay.
According to the report, Annuity rates are heading for their biggest fall in a single year since 2002, having dropped by 8.6% for a male aged 65, since the start of the year. The third quarter of the year saw the largest falls so far with Annuity rates for men dropping by 4.1%, whilst the rates for women fell by more, at 4.8%.
Unless this trend is spectacularly reversed, 2012 will mark the fifth year in a row that Annuity rates have dropped.
The Moneyfacts report backs up research done recently by Annuity provider MGM Advantage, who found that Annuity rates have dropped by 20% over the past three years and by 7% over the last three months.
The Investment Sense pension Annuity calculator will show you just how far Annuity rates have dropped for your specific circumstances.
Why have Annuity rates dropped?
Annuity rates have been on a downward trend for many years, with increased longevity being the principle reason.
However, 2012 has seen two additional issues.
Firstly, the yield on gilts, which are used by insurers to back their Annuities, have fallen significantly, due to the ongoing Eurozone crisis, the UK being seen as a safe haven and the Bank of England’s policy of Quantitative Easing.
Secondly, the EU gender directive will come into force on 21st December 2012, this will equalise Annuity rates between men and women and is likely to lead to further falls in Annuity rates, especially for men.
What can be done about falling Annuity rates?
In the face of falling Annuity rates experts recommend that people needing to buy an Annuity, because they want a guaranteed income for life from their pension, can do a number of things to help them get the best Annuity rate possible.
Firstly use the Open Market Option to shop around for the best Annuity rate. Most pension providers must offer the Open Market Option, or OMO, which means would-be retirees don’t have to buy their Annuity from their current pension provider.
Secondly, retirees should check whether they qualify for an Enhanced Annuity, which will usually give them a higher income due to health or lifestyle issues such as smoking or higher than average alcohol consumption.
Thirdly, if you are male, and thinking of retiring soon, then buy your Annuity before 21st December 2012, when rates are likely to fall due to the implementation of the EU gender directive.
Finally, check whether an Annuity is right in the first place, there are many other options, including Income Drawdown, now known as Capped Drawdown; once bought an Annuity can never be changed, it therefore makes sense to ensure it is the right product in the first place.
Our team of Independent Financial Advisers in Nottingham are experienced in developing retirement income strategies for clients the length and breadth of the UK. If you are approaching retirement and would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email firstname.lastname@example.org