New killer annuity rate cut on the way

If you thought annuity rates couldn't get much lower, think again. Research from Moneyfacts claims average annuity income rates have dropped by as much as -8.6% in the last year, crushing the income of many newly retired people.

But a new -10% drop in annuity rates looks likely for new UK male pensioners - if they don't act smartly.%VIRTUAL-SkimlinksPromo%

Christmas annuity crusher

According to the Moneyfacts Treasury Report, the on-going effects of more quantative easing and historic all-time-low interest rates have decimated pension annuities for many this year (and last). In the last quarter, it's estimated average annuity incomes slid a further -4.1% for a a 65-year-old male and close to -5% for a 65-year old female.

But a new killer cut looms. This is the European Gender directive, which comes into place just before Christmas and promises to crush annuity rates for healthy, newly-retired men by as much as -10%. Perhaps even more.

Slashed again

"Conservative estimates reckon a cut of 5-10% for annuity rates," warns pensions expert Laith Khalaf from pensions expert Hargreaves Lansdown. "The Treasury actually came up with an estimate of beyond 10%. You should start doing something now about it now if you're retiring in the next three to four months as you will need to allow time for annuity money to transfer."

Even if you wait another couple of weeks, you could be pushing your luck, warns Khalaf. But that's exactly what many newbie pensioners will be doing, appalled at current annuity rate offerings.

The Telegraph claims that three and a half years ago, three annuities were sold for every four people turning 65. "Now the figure is just one in two. As a result, almost a million potential annuity buyers have become 'annuity refuseniks' since 2009."

Shop around

Realistically, annuity rates are only likely to rise when Bank of England interest rates start to climb again. But that could still be some time off. There's also increased pressure on the regulatory front pushing insurers and pension funds into safer gilts, which usually offer lower returns.

That means it's even more important to shop around. You only get once chance to buy your annuity.

The five worst financial crises of our time
See Gallery
New killer annuity rate cut on the way

More stories

Read Full Story