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December 5, 2009

Annuity rates plummet 45%

by Gill Montia

Story link: Annuity rates plummet 45%

The Pensions Advisory Service has confirmed that many workers approaching retirement today are facing the lowest payouts in history.

The Service, which is a government-funded organisation that provides information and guidance on all pension matters, has followed up research from financial information website, Moneyfacts.

A study of the market found that workers are likely to get just half the income they would have received if they had saved the same amount of money 15 years ago.

As a result, workers who want to retire are facing a “nightmare” and many will have no option but to keep working into their 70s or sell their family homes to survive.

The bleak outlook affects members of “defined contribution” pension arrangements, such as company pension schemes and private pension schemes, which use pension savings to buy an annuity.

Based on the most common type of annuity, which does not increase during payment, the research found that in 1994, a 65 year old man would typically have been paid an annual £1,145 from an annuity purchased with his pension pot.

Today, income would typically be £625, representing a drop of 45%.

For women, whose payouts are lower than men because they tend to live longer, the figure has fallen from £1,016 to just £585.

Despite annuity rates plummeting, the research also revealed that around a third of people coming up to retirement fail to shop around for the best deal and take what is offered by their current pension provider.

 

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