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Insurance industry

Annuity Rates Plummet as Pension Providers Cut Back Amid Falling Government Bond Yields

Strategic Insights

— 1 min read

Annuity rates are plummeting as numerous pension providers have reduced their rates in recent weeks, leaving pensioners facing lower incomes in retirement. This trend is largely attributed to the fall in government bond - or gilt - yields, which annuities are tightly linked to. Pension providers such as Norwich Union, Legal & General, Standard Life, Canada Life, and Prudential have cut their annuity rates since the beginning of January, resulting in 2.5% less annual income for new annuity buyers compared to those who purchased one last month.

Key Takeaways:

  • Norwich Union, Legal & General, Standard Life, Canada Life, and Prudential have reduced their annuity rates since January 1st, resulting in lower annual income for pensioners.
  • The best rate for a joint life annuity rising in line with inflation purchased by an investor with a £1.5m pension pot has fallen from £53,765 just before Christmas to £52,381, a reduction of £1,384 a year.
  • According to Lawrence Jackson, head of annuities at Norwich Union, further reductions in annuity rates are possible if gilt yields continue to fall.

Statistics:

  • Annuity rates have fallen by 2.5% since the beginning of January.
  • The best rate for a joint life annuity rising in line with inflation has fallen by £1,384 a year.
  • In April, an investor with a £1.5m pension pot could have secured an annual income of £54,330, compared to the current rate of £52,381.
  • Gilt yields have been falling, with the best rate for a joint life annuity rising in line with inflation decreasing from £53,765 to £52,381 in just a few weeks.
  • The pension industry isexperiencing significant changes, including annuities being written on special terms and the pensions simplification rules due in April, which will weaken annuity rates further.

Sources:

  • SHARLENE GOFF, "Pension providers cut annuity rates in January amid falling government bond yields", [Financial Times]()
  • Billy Burrows, William Burrows Annuities, cited in SHARLENE GOFF, "Pension providers cut annuity rates in January amid falling government bond yields",
  • Lawrence Jackson, head of annuities at Norwich Union, cited in SHARLENE GOFF, "Pension providers cut annuity rates in January amid falling government bond yields",
  • Tom McPhail, head of pensions research at Hargreaves Lansdown, cited in SHARLENE GOFF, "Pension providers cut annuity rates in January amid falling government bond yields",

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