Annuity rates force retirement rethink for many

The pandemic and poor annuity rates have altered the retirement plans of older savers.

More than a year of lockdown restrictions and uncertainty in the economy and jobs market during the coronavirus outbreak has changed many people’s approach to how they spend their money.

There have been difficult decisions for retirees as many have had to delay when they will stop work and enter their golden years due to the pandemic.

We’ve already seen industry research showing those in their 40s and 50s now planning to delay their retirement by up to two years.

Now, comparison website Moneyfacts warns that those closer to retirement are currently left with poor annuity rates if they want the peace of mind of a regular income.

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Moneyfacts data shows that annuity income has struggled to make a noteworthy improvement during the pandemic.

A 65-year-old buying a single life annuity for £50,000 would now only get £86 extra on average compared with last year, Moneyfacts says.

The average yearly income from an annuity now stands at £2,357, up from £2,271 in May 2020, according to Moneyfacts.

However, before the pandemic struck in May 2019, yearly income was £2,516 – so today, retirees get £159 less on average.

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Rachel Springall, finance expert at Moneyfacts, adds: “Building a comfortable retirement pot may feel out of reach for some, particularly when interest rates sit at record lows and inflation is predicted to rise, leading to an erosion of the true spending power of retirees’ savings pots that supplement their pension provisions. 

“Annuity income has failed to return to levels seen before the pandemic, which means consumers considering this option will be getting less yearly income than they may have expected. Retirees may well be facing a pensions shortfall and their savings are not working as hard as they could.”

She says pensioners may have to consider other products to boost their disposable income such as equity release, although this has its own risks and costs.