Retirees looking for a secure retirement income now face the prospect of annuitising at the lowest point in the product’s history after annuity rates collapsed to record lows, according to new figures.
The analysis shows that average annual pension annuity income has declined throughout much of 2019, and has intensified since August 2019 on the back of a sharp fall in gilt yields.
This latest drop in annuity rates means that average annual annuity pension income is now 1.2% lower than its previous all-time low recorded back in September 2016, following the impact of the EU referendum result.
Richard Eagling, Head of Pensions at Moneyfacts.co.uk said, “Although the demand for annuities has reduced substantially since the introduction of pension freedoms in 2015, it is still the only product capable of turning defined contribution pension savings into a guaranteed income for life.
“In the last few years, there has also been an increasing awareness of using annuities as part of a wider range of retirement solutions, typically to provide a baseline income from which to cover monthly living costs. As such, the security that annuities offer makes them an integral part of the retirement income landscape.
“However, the pricing trends at the time of annuitisation are critical to retirement income outcomes. Annuity rate risk, whereby individuals face the danger of locking into a low income at the time they retire, has always been a key retirement risk, but it has increasingly come to the fore again in recent months.”