How to Boost Your Retirement Income

02-Sep-2010

New research from data provider Moneyfacts shows that annuity rates have been steadily dropping over the summer months, and are now at an all-time low. 

The figures, released by Investment Life and Pensions Moneyfacts, show that the average rate for a female aged 65 has decreased by 5.6% in the past 12 months.  The equivalent product for a 65 year-old man has decreased by 6.3% over the same period.  

These figures relate to a 'level without guarantee' annuity purchased for 10,000 GBP, which means that the income from the annuity would remain the same for the rest of the annuity holder's life, regardless of inflation. 

Although this is in itself a significant reduction, Moneyfacts highlights the fact that the average male annuity rate has dropped by a staggering 45.5% over the last 15 years, with female rates having decreased by 41.8% over this time.   As we're all living longer, this trend is likely to continue.

"With every passing month the outlook for those approaching retirement appears bleaker," commented Richard Eagling, Editor of Investment Life&Pensions Moneyfacts. "There has been a spate of annuity re-prices over the summer months which has unfortunately left rates at record lows. In a few months time the first baby boomers will hit retirement.

"Often perceived as the lucky generation, they are likely to face a rude awakening when they come to secure their retirement income via an annuity. With gilt yields still low and life expectancy increasing we can expect annuity rates to fall further still. Tomorrow's pensioners face a desperate battle to secure a comfortable retirement."

Although the outlook is therefore rather gloomy for those imminently approaching retirement, there is a way of ensuring that you get the best possible deal on your annuity.  This is quite simple: don't go ahead with the deal that you're offered by your pension provider before you have looked around to see if your deal can be improved upon elsewhere.  You'll start receiving information from your pension provider in the months before your retirement, but put it to one side until you have had a chance to shop around and make an informed decision.

Legally, every pension holder has an 'open market option', which means that they have the right to find an annuity from any UK provider, not just the one that provides their pension.  Many consumers do not exercise this right, meaning that they may be losing out on hundreds of pounds of income each year after retirement.  

As any savvy consumer knows, annuities are one of many financial products where it pays to shop around.  However, whereas you can easily switch your car insurance elsewhere the year after making a bad decision, you cannot change your mind once you have bought an annuity.  Therefore, it's so important to take the time to compare the different annuity rates and types, seek professional advice and make the right decision for your retirement needs.