Due to the falls in interest rates and stock market returns over the past few years most financial products have suffered, including annuities, by around 12%.
People retiring over the last few years and purchasing pension annuities have seen huge drops in the levels of income they can expect. This is because the rate of interest paid by insurance companies in return for pension funds has fallen dramatically. Many industry professionals believe annuity rates will continue to fall, especially if interest rates fall further, as expected. Life expectancy is also on the increase and this can only lead to decreased rates. Basically, the longer the insurance companies believe they will have to pay out for, the lower the amount they will give at the start.
Tip:
If you are approaching retirement and want to use your pension fund to buy an annuity, take independent financial advice. There are huge differences in the rates available from different companies and it pays to shop around for the best. Increased rates are also available if you have health problems, smoke or live in the north of England. Contact us for a fact sheet or a comparison of the rates available.
What is an annuity? Visit the Pensions Adviser.com.
Get a copy of our free fact sheet on Retirement Options in the registered users download area.