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Annuity rates fall in the wake of pension reforms

24 Apr 2015

Annuity rates have fallen to a record low following a major shake-up of the pension regime, new research suggests.

In his 2014 Budget the Chancellor, George Osborne, unveiled a raft of changes to the pension rules in a bid to give individuals more freedom over their pension pots.

The reforms, which took effect from April 2015, include removing the requirement to purchase an annuity, an insurance product which pays out a guaranteed income for life.

As a result, the average annual income payable from a standard annuity has dropped by 5.7%, according to findings from financial data service, Moneyfacts.

Meanwhile, the income from an average annuity held by a 65 year-old with a £50,000 pension pot is thought to have dropped by some 6.4%.

‘The prospects of securing a comfortable retirement have taken a further blow with news that standard pension annuity rates have hit an all-time low,’ commented Richard Eagling, head of pensions at Moneyfacts.

‘In many cases, retirees looking for a secure income now face the unenviable position of annuitising at the lowest point in the product's history.

‘This is particularly unfortunate for those individuals who may have deferred making a choice until the introduction of the pension freedoms but have since decided that an annuity is still the most suitable product for them’.