Anyone buying an annuity today will receive on average £2,000 less than someone who did so six months ago, new research has suggested.
In March, the chancellor announced sweeping pension reforms which meant savers were no longer required to purchase an annuity. The resultant uncertainty has sent annuity rates plummeting, according to retirement firm MGM Advantage.
The average annuity today of £3,074 per year, based on a £50,000 purchase price, would pay £2,058 less income over an average retirement compared to the equivalent annuity purchased in March (paying an annual income of £3,172), says Aston Goodey, sales director at MGM Advantage.
"Annuity rates have tumbled over the past quarter due to the yields available on gilts and other fixed interest investments, as well as the uncertainty remaining in the market following the Budget," says Goodey.
"Unfortunately, this all means people who buy an annuity today will receive less income over retirement than those people who purchased earlier in the year. The difference in rate can make a significant difference in the amount of income over an average retirement."
So what can you do?
The obvious first step is to do your research and shop around.
There is no 'silver bullet' option that is best for everyone, as your individual circumstance – such as age, gender and job – will have an impact on the income you can receive from different annuity providers.
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What does the future hold for annuity rates?
Perhaps unsurprisingly given the scope of changes unveiled by the chancellor earlier this year, the future prospects for annuity rates is uncertain. However, Goodey at MGM Advantage is convinced there is reason for optimism and that better rates could be waiting in the near future.
"Any improvements in interest rates and the yields available on gilts should help move rates up," says.
"However, the market is talking about the middle of next year before we are likely to see any increase in interest rates.
"As we move through into 2015, we may see rates improve in the more competitive parts of the market, as providers seek market share."
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