Retirement incomes linked to annuities plunge by almost 10%

Average retirement incomes for people taking an annuity have plunged by nearly 10% since the new pension freedoms were launched, according to research.

Financial information website Moneyfacts said its findings show the task facing people to secure a comfortable retirement income through their private pension has "never been tougher".

Moneyfacts looked at the impact of the changing value of personal pension pots and falling annuity rates on retirement incomes.

Annuities give people a guaranteed income when they retire - but new freedoms were introduced on April 6 2015 which mean people aged 55 and over are no longer required to exchange their pension pot for an annuity. Instead, they have more options to take the cash how they wish, subject to tax.

Moneyfacts' calculations were based on someone contributing £100 per month into an average personal pension fund over a 20-year period and retiring at the age of 65 with a standard annuity.

It found that someone who had paid £100 gross per month into an average personal pension fund over 20 years would have built up a pension pot of £42,470 if they retired now. But someone retiring a year ago who had built up a fund over the previous 20 years would typically have had more cash in their pot, at £45,946.

When the fall in annuity rates over the last year is also factored in, today's retirees could expect to generate an average annual retirement income of £1,983 - which is 9.4% lower than the average income of £2,191 that they could have expected a year ago.

Moneyfacts, whose records go back to 1994, said the combination of lower annuities, coupled with falling pension returns, means that this latest retirement income figure is at an all-time low.

Richard Eagling, head of pensions at Moneyfacts, said: "A year into the new pension freedoms and the prospects of securing a comfortable retirement income for those making their own private pension provision look bleaker than ever.

"The continuing fall in annuity rates is particularly disappointing as annuity sales are starting to revive as more retirees realise the importance of a secure regular income.

"While pension freedoms have created more ways for individuals to access their pension pots, the real problem facing retirees is how to generate a suitable income.

"Unfortunately, there are still few products capable of helping retirees secure a reasonable retirement income, which was always one of the fundamental problems.

"In fact, if anything, the new pension freedoms have proved counter-productive for retirees reluctant to take any risks with their pension pots as annuity providers have struggled to offer competitive pricing given the more limited business volumes at stake."