The typical annuity fell 6.3% last year, according to Moneyfacts.
Pension savers seeking a guaranteed income to see them through retirement have suffered a fresh blow as figures show annuity income fell to record lows in 2020.
Analysis by Moneyfacts found the average annual income someone aged 65 could get by buying a standard annuity with their retirement nest egg was down 6.3% in 2020.
This follows an 8.5% fall in 2019, and a 0.2% fall in 2018, part of a general downward trend in annuity income since 2004.
Average pension fund growth was also lower last year at 4.9%, down from 14.4% growth in 2019.
Nick Flynn, annuities director at Canada Life, says: “People may want to consider buying annuities in tranches over time, as you age you will receive a better rate than you will have done at 60 or 65, for example.”
“The biggest mistake people can make is in not shopping around for the best price. Don’t simply accept the offer provided by your pension company.”
The difference in rates can be significant, especially if you take any medication, smoke or drink.
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“Almost any regular medication will qualify for an enhanced annuity, which is essentially more income for life,” Flynn added.
Data from HM Revenue & Customs also shows savers drew £2.3 billion out of their pots during Q3 2020, a rise from Q2 that may well be attributed to the impact of the coronavirus pandemic and falling annuity rates.
Rachel Springall, finance expert at Moneyfacts, says: “Retirees considering an annuity would be disappointed to see another fall in the average annual income for the third year in a row, so it would be understandable for them to favour pension drawdown instead.
“Indeed, since pension freedoms were introduced in 2015, annuity income has fallen for five out of the six years. Growth has not been seen across the market for one full year since 2017, which was just 1%.”
Annuity rates are affected by a number of factors, but the main drivers are interest rates and gilt yields. Both have been pushed to extreme lows due to measures put in place following the 2008 financial crisis.
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When interest rates, and so the yields on gilts, fall, annuity rates fall too, as they are pegged to them.
The Bank of England Base Rate is at a record low of 0.1%, and gilt yields have fallen from around 5% in May 2008 to 0.5% today.
Pension savers with life-limiting health conditions may be eligible for an enhanced annuity. These can provide significantly higher rates.
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