Brexit has added to the pains of those savers wanting to buy income in the form of annuities, with the referendum outcome pressing down payout rates by almost 4pc.
Since the referendum, more than a dozen negative rate adjustments have been announced, and a standard terms annuity now offers an income of just £4,890 on a fund of £100,000, according to Hargreaves Lansdown.
But that was small beside the longer-term decline : payouts are down 37pc since 2008.
Annuity payouts reflect returns on government bonds, or gilts, which have been depressed in the years since the financial crisis as investors have piled into the bonds and driven down their yields.
Eight years ago, a 65 year old with a £100,000 pot could have bought an income of £7,855.
Just six months ago in January, a 60 year old could get a better deal than a 65 year old can today: then, a £100,000 could have bought an income of £4,930. That means they would have received five extra years of income compared to what a 65 year old would get today.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: “Annuity rates are disappearing off the bottom of the chart. There is no certainty whether or when rates will go back up again.
“It is also important to note that in recent years, anyone who decided to delay buying an annuity may well be worse off today.”
He suggested that anyone planning to buy an annuity shouldn’t delay because rates today are lower than the past.
“For many investors a mix and match strategy , putting some of their pension into an annuity and leaving some invested, may well be the best approach,” he said.
Providers such as Legal & General, Standard Life and Retirement Advantage have all cut annuity rates since the referendum result was announced.
Those hoping to take a pension lump sum right now have been urged to wait , as market volatility could see them take their pension at a time when the pot value is temporarily down.
Kate Smith, head of pensions at asset manager Aegon, explained that gilt yields, corporate bond rates and life expectancy are the factors driving down annuity rates. Low gilt and bond rates reduce the level of predictable income annuity insurers can produce.
And the increasing life expectancy of annuitants means providers are likely to pay less per year.
She said: “The stock market has recovered a great deal since the depths of the financial crisis, and some pensions savers and drawdown investors will have done well out of the bounce in equity markets.” However, she added that retirees have had to contest with either the prospect of either market uncertainty if they leave their money invested, or the certainty of a low annuity rate.
Ms Smith urged people to hold off making decisions about buying an annuity to avoid locking into a lower income.
Or, where possible, they could consider putting off retirement and continuing to save in case annuity rates bounce back.
She said: “If they need a retirement income now they could consider opting for draw-down, which allows people to keep their money invested in the markets and take an income.
Tags: pensioners
This entry was posted by John on Wednesday, July 20th, 2016 at 7:28 pm and is filed under Pension news.
