Annuities still rate highly for many savers | Personal Finance | Finance

From April 2015, pension freedom reforms liberated savers from the obligation to buy an annuity.

This followed long-standing complaints about poor value annuity rates, which plunged after the financial crisis.

In 2008, a 65-year-old with a £100,000 pension pot could buy a single life annuity paying a level income of £7,800 a year. By April 2015, that had plunged to £5,447.


Sales have crashed from around 400,000 a year to 80,000, and a rash of providers have since stopped selling policies as a result.

Big name insurers including Aegon, LV=, Partnership, Prudential, Standard Life and Friends Life have exited the annuity market, shrinking choice for retirees.

This leaves just seven annuity providers: Aviva, Canada Life, Hodge Lifetime, Just, Legal & General, Scottish Widows and Retirement Advantage, which has just been bought by Canada Life as the industry continues to consolidate.

Nathan Long, a senior pension analyst at Hargreaves Lansdown, says falling competition is squeezing rates again, with the average single level annuity now paying just £5,166 a year.

“However, annuities still offer something you cannot get elsewhere, a guaranteed income for life… no matter how long you live.”

Savers who snubbed annuities in the rush to embrace pension freedoms may live to regret their haste if they exhaust their pot and spend their final years in poverty.


Andrew Tully, pensions technical director at Retirement Advantage, says the annuity market should still be worth around £4billion this year, but far greater numbers now take the cash or opt for income drawdown, where you leave your pension invested and draw money when you need it.

Retirement Advantage’s Retirement Account is another option combining the certainty of an annuity with the flexibility of drawdown. 


Stephen Lowe, director at specialist retirement income group Just, says that many insurers are obliged to continue offering their own pension customers something called a guaranteed annuity rate (GAR).

The GAR is incredibly attractive in today’s low interest rate world. He says: “Insurers pledged to offer these gold-plated rates 10 and 30 years ago, when interest rates were much higher than today, so take advantage if you can.”

Lowe says annuities have fought back since the initial shock of pension freedoms: “People continue to value the peace of mind that comes with knowing your essential spending will always be covered.”

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