A recent report suggests that annuity income rates are on track for their largest annual decrease since the new pension freedom reforms were announced in 2014.
Income rates declined in the second quarter of this year, with the average standard annuity income falling to its lowest level since September 2016, after the Brexit referendum result.
According to the report, in June, a 65-year-old who had a £10,000 annuity would have received 4.1 per cent less income than they did in April, and individuals with a £50,000 pension pot would have received 3.8 per cent less.
Meanwhile, since the beginning of 2019, income rates on enhanced annuities, which pay a higher income to individuals with habits such as smoking or health problems that could potentially reduce their life expectancy, have suffered even bigger drops, by as much as 6.1 per cent depending on the purchase price. This means that the income for an enhanced annuity for the £10,000 pension pot is now just £493.84.
The report’s authors suggest that the falls have primarily been caused by a decline in gilt yields, and until there is an increase in these, annuity rates are unlikely to increase significantly.
However, rates fluctuate, and annuities are still attractive to many because of the advantage of having a fixed income. Moreover, to avoid any pitfalls, anyone interested in taking out an annuity would be advised to take professional advice so that they can see what deals are available.
To find out more about how Kirk Newsholme Financial Planning can help, please contact Richard Leonard at Richard.Leonard@knfp.co.uk or by calling 0113 204 4215.