UK annuity pension rates fall again

Eurozone investor fright is forcing annuity rates even lower. New research from Hargreaves Lansdown claims eight different insurance companies slashed annuity rates in May, including two yesterday.

However there remain stark differences in rates offered, with the Prudential coming bottom of the annuity heap. Let's look at the detail.

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The below table of terms for a 65 year old man with £100,000 shows how rapidly the rates can drop away. From £5,836 from Canada Life to just £5,260 from Prudential. We asked the Pru for a response on why - see table below - they pay lower rates then the competition, but they weren't able to respond.

"If you are very close to retirement, perhaps within the next year, then you may well want to buy your annuity sooner rather than later (today wouldn't be too soon)," says pensions research boss Tom McPhail at Hargreaves Lansdown.


"The combined pressures," he says, "of falling bond yields, Solvency 2, the European gender directive, increasing use of individualised underwriting and improving longevity could all yet push rates down lower."

He adds: "These arguments are particularly relevant if you are unwilling or unable to tolerate sustained longevity and investment market risks in retirement. This means the risk averse and those with small pension pots - i.e. most people."

Annuity rates have fallen year-on-year, more or less, for more than a decade now. The latest rash of figures is especially disappointing given widespread hope that rates might be starting to climb back slightly.

More support needed

Joanne Segars, Chief Executive of the National Association of Pension Funds (NAPF), pins much of the blame on quantitative easing (QE). "If there is to be more QE then the Government needs to do more thinking about the impact on pension funds. QE has driven pension funds further into the red and leaves those trying to buy an annuity with a worse deal, which they are then locked into for life.

"We are being told it will all be worth it in the long-run, but in the short-run pension funds and pensioners are being left to deal with the pain. They need, and deserve, much more support."

However, in another twist, insurers are increasingly using post codes to evaluate rates - which means middle class pension savers in better off areas will see their pensions shaved further, while pensioners in poorer areas will be boosted.

10 things we hate about our banks
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UK annuity pension rates fall again

More than 46,000 of 106,000 the complaints received by the FOS in the second half of last year related to payment protection insurance (PPI). And the organisation is expecting to receive a record 165,000 PPI complaints in 2012/2013.

The huge numbers are due to the PPI mis-selling scandal that should now be a thing of the past, but there is no doubt that the insurance, which can add thousands to the cost of a loan, is highly unpopular!

(Pictured: Martin Lewis after the PPI payout ruling)

Complaints about mortgages jumped by 38% in the last six months of last year, the FOS figures show, compared to an increase of just 5% in investment-related complaints.

Common gripes about mortgages include the exit penalties imposed should you want to sell up or change you mortgage before a fixed or discounted deal comes to an end, and the high arrangement fees charged by many lenders.

While there is nothing in the data released by the FOS about the number of complaints relating to savings accounts, hard-pressed savers have been struggling with low interest rates for several years now.

You can get up to 3.10% with Santander's easy-access eSaver account, but many older accounts are paying 1.00% or less and even this market-leading offer includes a 12-month bonus of 2.60% - meaning that the rate will plummet to just 0.50% after the first year.

Banks are imposing the highest authorised overdraft interest rates since records began, with today's borrowers paying an average of 19.47%, according to the Bank of England.

A typical Briton with an overdraft of £1,000 is therefore forking out around £200 in interest charges alone. Coupled with meagre returns on savings, it's enough to make your blood boil!

While authorised overdrafts may seem expensive, going into the red without permission will cost you even more due to huge penalty fees.

Barclays, for example, charges £8 (up to a maximum of £40 a day) each time that there is not enough money in your account to cover a payment.

If you need to send money abroad, the likelihood is that your bank will impose transfer charges - and offer you a poor rate of exchange. Someone transferring a five-figure sum could easily lose out by £500 or more as a result.

The good news, however, is that you can often get a better deal by using a currency specialist such as Moneycorp.

Automated telephone banking systems, not to mention call centres in far-flung parts of the world, are one of our top gripes - especially as we often encounter them when we are already calling to report a problem.

In the words of one disgruntled customer: "What is it about telephone banking that turns me into Victor Meldrew? Well, maybe it's the fourteen security questions, maybe it's the range of products that they try to push or maybe it's because I'm forced to listen to jazz funk at full volume while my phone bill soars.

"Actually though, I think it's because the people I eventually speak to rarely seem able to solve the issue I'm calling about."

The days of a personal relationship with your bank manager are long gone - for the huge majority of us at least.

When ethical Triodos Bank investigated recently why around 9 million Britons would not recommend their banks to a friend or relative, it found that almost a third felt they were not treated as individuals. Another 40%, meanwhile, were simply disappointed with the customer service they received.

When you're in a rush, the last thing you want to do is wait in a long queue at your local branch.

Researchers at consumer champion Which? recently found that most people get seen within 12 minutes, but you could have a much longer wait if you go in at a busy time. Frustrating stuff!

The Triodos Bank research also indicated that the bonus culture that ensured the bank's high-flying employees received large salaries, even when it was making a loss at the taxpayer's expense, was hugely unpopular with consumers.

About a quarter of those who would not recommend their current banks said this was the main reason why. And with RBS executives sharing a £785 million bonus pool despite the bank, which is 82% publicly owned, making a loss of £2 billion last year, it's not hard to see why.


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