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Annuity rates have fallen at fastest rate in 3 years


Annuity rates have fallen at their fastest pace in three years, the information website Moneyfacts has found.

Annuity rates, which determine the value of private pensions, have fallen by 2.6% during August. This means rates, and the returns offered, are only getting worse. Anyone buying an annuity, or an income for life, will receive a lower pension.

This means a person with a £50,000 pension pot over 20 years would lose £1,540 in income.

The reason for this decrease could be due to a reduction in gilt yields (A gilt is a UK Government liability in sterling), which has a major influence on annuity rates. There is also growing pressure on annuity providers to cut their rates, which is a result of a demand for lower rates since the budget changes gave retirees more flexibility on how they can spend their pension pot. Lack of customer demand is having a significant influence on the market and is helping to push down rates.

Richard Eagling, head of pensions at Investment Life and Pensions Moneyfacts, said:"A fall in annuity rates of the magnitude that we saw in August is unusual, but a significant reduction in gilt yields combined with falling demand has left annuity providers with little room for manoeuvre. These are testing times for the annuity market and we expect that pricing annuities will remain challenging until the new pension freedoms are introduced next April.”

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