Over the past 15 years, the average annuity purchase value has grown by 167%, while annuity rates fell by 26%, according to the results published in the Hargreaves Lansdown Annuity Index.
The report revealed that annuity rates are currently the highest they have been for two years, and 21% higher than the lowest levels recorded since the report was first published.
Hargreaves Lansdown senior pension analyst Nathan Long said: “The last 15 years has seen a seismic shift in how we leave work and draw income from our pensions. Annuities allow retirees to buy themselves a guaranteed income for the rest of their life. Many people crave the peace of mind this brings, especially if they don’t have other sources of secure income when work stops. Retirement can last an awfully long time, with many twists and turns along the way. New trends of flexible working do not exactly dovetail with the certainty and security of an annuity, but annuities remain invaluable in later life and we expect to see many retirees buying annuities at older ages.
“The golden rule is to ensure you have at least sufficient secure income to pay the bills in retirement, whether that be from an annuity, a final salary pension or the State Pension. If you need to top up by buying an annuity ensure you confirm all of your health information, it won’t make your income lower and could make a significant difference to your retirement.”
In May 2003, a 65 year old man could convert a £100,000 pension pot into an annual, non-increasing income of £7,337 when the Bank of England base rate stood at 3.75%. However, with base rate at 0.5%, 65 year old men can buy an income of £5,445 with a £100,000 pension pot.
These figures represent an interest rate drop of 86% and annuity fall of 26%, while men expect to live 14% longer.
Annuity income peaked in July and August 2008, when men could expect to receive annual payments of £7,855 with a £100,000 pension pot. Annuity income was at its lowest in September 2016, when the annual payment figure was just £4,495.
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