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News - 6 September 2011

Annuity rates at lowest ever level

Over the past three years, annuity rates have fallen by 20% to their lowest level ever, wiping £1,600 a year off the income from a £100,000 pension pot.

Someone who has built up a pension pot worth £100,000 can now exchange it for an income of £6,201 a year, compared with £7,855 in August 2008. This is a fall of £1,654 or 21%.

The figures are for a 65-year-old man buying a pension that will not rise with inflation or pay an income to his wife should he die first. Rates on index-linked and “joint life” annuities have also fallen sharply.

The fall means that people retiring now on occupational or private pensions can expect to receive a far lower income than their counterparts who retired just three years ago. People with final salary pensions are not affected.

Annuity rates have fallen because they are linked to the interest rates paid on government bonds or gilts. Gilt yields have fallen to record lows in recent weeks as investors sought a safe haven from the eurozone debt crisis, pushing prices up.
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