Workers in the UK private sector face the worst rates of annuity in over 20 years, pension experts say.
Workers who are now approaching retirement will be the people who are affected by these poor rates, as the rates currently stand an individual who has accumulated a pension pot of £100,000 over their working life will now receive a yearly pension income of £6,350, whereas earlier in the year that figure was £6,760.
Back in 1990 the amount of money pension holders could expect from the same pot was £15,000.
This drop in annuity rates adds further weight to the argument that UK finances are going from bad to worse. Recently, interest rates were cut to staggering new lows by the Bank of England, and tax increases are expected come the Coalition Government’s Emergency Budget in June.
Financial experts fear that we are entering a new dark age for personal finance. Finance adviser Tom McPhail of Hargreaves Lansdowne told The Telegraph: “Anyone approaching retirement now will watch these annuity rates with mounting alarm and despair”, and Ros Altman, former government official- now pensions expert, added: “They were always told to worry about saving enough through their working life, but no one ever warned them that a low annuity rate could wipe out that saving when they came around to retiring. And the problem is that annuity rates are likely to worsen”.
Up to eight million UK pension holders rely on annuity rates, the reason for the falling rates is linked to the general financial woe that is sweeping across Europe. Annuity rates are connected to the returns the Government receives on gilts and bonds, and with returns falling on those, so do the annuity rates.