Standard annuity rates have tumbled to an all-time low following the introduction of new pension freedoms, according to analysis from Moneyfacts.
It found someone aged 65 with a pension pot of £10,000, purchasing a single life standard level annuity at the moment could secure an average annual income of £476, down from £506 at the start of the year. That's a fall of 5.9%.
For a 65-year-old with a bigger £50,000 pension pot the shift is more pronounced. At the beginning of the year the lump sum would have secured an average annual income of £2,727 on a standard single life annuity, but now the same pot will generate an average income of £2,550 a year, a 6.4% fall.
Moneyfacts found the trend is even worse for standard joint life annuity rates.
A male and female aged 65 purchasing a joint life standard annuity with a £10,000 pot could get an average annual income of £428 in January. But fast forward to April and the same pot can only get a couple an income of £399 a year, which represents a 6.7% drop in rates.
For a male and female with a £50,000 pot the potential annual income from a joint life annuity has fallen from £2,346 at the beginning of the year to £2,185 in April, a drop of 6.8%.
What's behind the fall?
Moneyfacts says the lower demand for annuities following pension freedoms introduced on 6th April and a sharp fall in gilt yields may be behind the downturn.
Before 6th April many of those saving into a defined contribution pension were required to purchase an annuity with their pension pot, an insurance product that provides a set income in retirement.
But these restrictions have now been lifted and pension savers can now do what they want with their cash.
However, that doesn't mean annuities have become obsolete.
Annuities are still useful for those that want to ensure they do not out-live their savings by securing a guaranteed income.
Slightly better for enhanced annuities
However there may be more hope if you qualify for an enhanced annuity.
These types of annuities are available to those in poor health or with a lifestyle that could reduce life expectancy and tend to secure a better income compared to standard annuities.
Moneyfacts analysis shows enhanced annuities have been more resilient since the new pension freedoms came into force, and though rates have experienced significant cuts they've yet fall to an all-time low.
The average enhanced level annuity for an individual aged 65 with a £10,000 pot could secure an annual income of £612 in January, but will now be closer to £579 a year on average, representing a 5.3% drop.
Those aged 65 with a £50,000 pot could secure an single life enhanced level annuity annual income of £3,250 at the beginning of the year but now can only get an average of £3,055 a year- a 6% fall.
Moneyfacts says the typical benefit of purchasing an enhanced annuity over a standard annuity is currently around 22%, so if you think an annuity is the best option for you it's definitely worth checking to see if your health or lifestyle makes your eligible.
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