Annuity payments plummet to record lows

Investment Life & Pensions Moneyfacts said the rates paid on annuities had reached their lowest level since its records began in 1994 following a spate of re-pricing by providers over the summer.

The average man aged 65 buying an annuity that does not rise in line with inflation can now expect an annual income of just 647 for every 10,000 he has saved – 6.3 per cent less than in August last year.

A woman aged 65 can now get an average income of 605 a year for every 10,000 of pension she has accumulated, 5.6 per cent less than 12 months ago.

The group said the latest falls meant the average annuity rate paid to a man had fallen by nearly 46 per cent during the past 15 years, while women have suffered a 42 per cent drop in the rates they can expect to receive.

The research is bad news for people nearing retirement, who are also likely to have suffered a fall in the size of their pension pot due to stock market volatility.

Richard Eagling, editor of Investment Life & Pensions Moneyfacts, warned that the situation was likely to get worse not better.

He said with gilt yields low and life expectancy increasing, annuity rates were likely to fall further still.

He said: "With every passing month the outlook for those approaching retirement appears bleaker.

"There has been a spate of annuity re-prices over the summer months which has unfortunately left rates at record lows. In a few months' time the first baby boomers will hit retirement.

"Often perceived as the lucky generation, they are likely to face a rude awakening when they come to secure their retirement income via an annuity."