Pensioners risk £5k in income stock market panic

Pensioners panicking over stock market volatility are risking up to £5k income by delaying taking out an annuity in the hope of seeing their pension fund recover, Key Retirement S

Related topics:  Retirement
Millie Dyson
6th September 2011
Retirement
The FTSE-100 has slumped 12% in the past two months sparking panic among people about to retire about the potential effect on their pension funds with Key Retirement seeing a surge in calls about delaying buying an annuity.

But annuity rates have also fallen around 3% over the same period with an average £100,000 fund now generating £6,624 a year compared with £6,831 – an annual loss of £207 which adds up to £5,000 over 25 years.

Analysts are predicting annuity rates could continue to fall having hit an all-time low after a 20% drop in the past three years further adding to the cost of delay. Another 3% fall in the next three months would cost pensioners £200 a year.

In reality the vast majority of pensioners coming up to retirement will have had their funds switched to safe investments which will not be affected by stock market volatility – and delaying buying an annuity will cost them income without boosting their fund.

Key Retirement Solutions, as part of their pension annuity service, offer a pension fund checking service for those looking at buying an annuity, and can also discuss the implications of delay to enable those buying their annuity to make informed decisions. 

The service checks for customers how their fund has performed during volatility and helps them decide on the best options for their circumstances – results so far show many coming up to retirement have generally not been affected, or not effected sufficiently to make delay beneficial.

Dean Mirfin, Group Director at Key Retirement Solutions, said:

“Pensioners have to literally live with the decision they take on an annuity and delaying can mean ensuring a lower income for life.

“People coming up to retirement are generally panicking unnecessarily over the effects of volatility on their funds when they should be concentrating on annuity rates and getting the best deal possible.

“What has to be taken into account is not just the effect of falling annuity rates, delay also means that income which would have been paid out today, if the annuity was bought now, is lost for good.”

Annuity rates have fallen because they are linked to the interest rates paid on government bonds or gilts which have hit record lows in recent weeks as investors sought a safe haven from the Eurozone debt crisis, pushing prices up.

In the longer term rates are expected to continue to fall because of the introduction of new regulations on insurers’ capital requirements and the equalisation of male and female rates following a European Court decision.

Annuity rates were as high as 15% in 1990 – which would have meant a £100,000 fund generating a £15,000 income – but are now at the lowest rate since the market was established in the 1980s.
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