Retirement annuity rates 'suffering their worst year on record'

The average income has plunged by around 15% this year

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Retirement annuity rates are suffering their worst year on record, making it even harder for people to secure a decent income, according to a website.

Moneyfacts said that the average income for someone taking out an annuity has already plunged by around 15% this year so far - marking a "truly awful year for annuity rates".

People can choose to buy an annuity with their pension pot when they retire, giving them a set income, usually for the rest of their life.

While the rates on offer have been falling in recent years, annuities do give people the security of knowing they will not out-live their savings.

Richard Eagling, head of pensions at Moneyfacts, said: "2016 has been a truly awful year for annuity rates, with rates falling to all-time lows. This is particularly disappointing as the stock market volatility that we are experiencing has re-emphasised the importance of a secure lifetime income for many retirees."

He said record low gilt yields following the EU referendum result and a significant weakening of competition in the annuity market have helped to exert "considerable downward pressure on annuity rates during 2016".

The pension freedoms launched in 2015 mean that people are no longer required to take out an annuity when they retire, and instead they have a wider range of choices.

Moneyfacts, whose records go back to 1996, found that the average standard annuity income for a 65-year-old has fallen by 14.8% on a £10,000 purchase price and by 15% on a £50,000 purchase price so far during 2016.

It said these figures "easily surpass" the previous highest annual annuity income fall of 11.5% in 2012. Although there are still more than three months of the year remaining, Moneyfacts said it is unlikely the current economic environment will facilitate a strong enough recovery in rates not to become the worst year since records started.

Steven Cameron, pensions director at Aegon, said: "With annuity prices at an all-time low and unlikely to recover soon, people need to start thinking differently and keep their options open. Putting off retirement, continuing to work and save will be an option for some."

He suggested some people could consider opting for drawdown, which allows people to keep their money invested in the markets and take an income.