Pension income from pensions annuities has fallen to a record low, with annuity rates cut by major providers including Aviva, Standard Life, Legal & General, Aegon, Canada Life and Prudential.
Pension income for a typical couple in their 60s dipped under 6% recently, bringing pension annuity rates to their lowest level in 20 years. As a result, a 60+ couple retiring in June 2010 with pension savings of £100,000 would stand to receive just £5,860 today, down 3.6% in two months from the pension income of £6,080 they would have received if they had purchased their pensions annuity in April.
The underlying cause for the wholesale reduction of pensions annuity rates lies in the gilts market. As insurers derive their returns for annuity payments primarily from gilts, the recent slump in gilt yields has had a disastrous knock-on effect on pensions annuity rates.
Using the Open Market Option (OMO)
The problem is exacerbated by a lack of awareness among retirees that they do not have to stick with their pension provider, when converting their pension pot into a pension income by purchasing their pensions annuity.
In 2009, 63% of people retiring (290,000 of them) stuck with their pension provider and failed to use their right to shop around, with the help of independent financial advice, for their pensions annuity. This right is known as their Open Market Option (OMO).
Those retiring with a pension pot of £5,000 or above can have their financial adviser do a competitive annuity quotation, a useful pensions planning tool which could increase pension income by up to 20%, and can add hundreds of pounds a year.
Are you retiring in the near future, and wishing to compare pensions annuities, to maximise your pension income? Make an annuity enquiry, or freephone 0800 678 5929 now.
