Pen­sions blow as big firms cut an­nu­ity rates

The Scotsman - - Farming - Jeff Salway

RE­TIR­ING work­ers have been dealt a new pen­sions blow as a fresh slump in an­nu­ity rates wiped thou­sands of pounds off the in­come they can ex­pect from their pen­sion.

Sev­eral in­sur­ers this week an­nounced cuts to the rates they of­fer on the an­nu­ities through which the vast ma­jor­ity peo­ple con­vert their pen­sion fund into an in­come when they re­tire.

Two years ago a 65-year-old man with £100,000 could buy a level in­come of £7,855 a year. Now the same man would get just £6,394, ac­cord­ing to new fig­ures from Har­g­reaves Lans­down, a dif­fer­ence of £1,461 a year. That means the av­er­age Scot­tish 65year-old man re­tir­ing now with a £100,000 pen­sion would typ­i­cally get more than £23,000 less in­come from his pen­sion over­all than if he had re­tired two years ago (based on life ex­pectancy of 81 for the av­er­age 65-year-old man in Scot­land).

The in­come paid by an­nu­ities has been hit by a slump in gilt yields, tak­ing them to a ten-year low, as in­vestors opt for se­cu­rity amid con­tin­ued in­vest­ment un­cer­tainty. An­nu­ity rates have now dropped by 45 per cent for men and 42 per cent for women since 1995.

Tom McPhail, head of pen­sions re­search at Har­g­reaves Lans­down, said Ae­gon, Aviva, LV, Le­gal & Gen­eral and MGM had all cut their an­nu­ity rates in the past few days. “Rates have been trend­ing down­wards for two years but in the last month they have fallen off a small cliff,” he said. “They will con­tinue go­ing down in the im­me­di­ate fu­ture, but I would hes­i­tate to say they will do so over the medium term.

“The crit­i­cal chal­lenge for in­vestors is to make sure they build some long-term dura­bil­ity into their re­tire­ment in­come by pro­tect­ing them­selves against the risk of in­fla­tion.”

The de­cline in an­nu­ity rates puts ex­tra onus on re­tirees to get the buy the best an­nu­ity pos­si­ble at re­tire­ment, with a dif­fer­ence of about 20 per cent be­tween the best and worst providers in the in­come paid out. Re­tirees can cur­rently use the open mar­ket op­tion (OMO) to shop around at re­tire­ment rather than take the an­nu­ity of­fered by their ex­ist­ing pen­sion provider.

How­ever, the OMO sys­tem is set to be re­formed af­ter the govern­ment expressed con­cerns over low lev­els of shop­ping around. One pos­si­bil­ity is a move to­wards a sys­tem where shop­ping on the open mar­ket for the best an­nu­ity is made the de­fault op­tion.

McPhail said there was a grow­ing ac­cep­tance at gov- ern­ment and reg­u­la­tory level that the OMO sys­tem was not work­ing. He pointed to fig­ures show­ing that peo­ple el­i­gi­ble for en­hanced an­nu­ities, which pay out more in­come to those who smoke or have im­paired health, are sig­nif­i­cantly more likely to get one if they shop around.

“Even the most re­cent re­search by the As­so­ci­a­tion of Bri­tish In­sur­ers high­lights the fact that the vast ma­jor­ity of peo­ple el­i­gi­ble for an en­hanced an­nu­ity don’t go for one if they stay with their ex­ist­ing provider for their an­nu­ity,” he said. THE num­ber of in­ter­net searches for fixed rate mort­gages has rock­eted as bor­row­ers seek se­cu­rity be­fore in­ter­est rates rise, ac­cord­ing to fig­ures pub­lished to­day.

Searches for 10-year fixed rate mort­gages in­creased by 888 per cent in the three months to the end of June, com­pared with the same pe­riod last year, the lat­est Ex­pe­rian In­sight In­dex shows.

There was also a 602 per cent hike in searches for five-year fixed deals, while searches for tracker deals rose by just 16 per cent as bor­row­ers re­sponded to con­tin­ued eco­nomic un­cer­tainty by look­ing for cheap longer-term mort­gages be­fore in­ter­est rates even­tu­ally re­bound. HOL­I­DAY­MAK­ERS are re­turn­ing from trips abroad with an av­er­age of al­most £30 in leftover for­eign cur­rency, re­search shows.

The un­used cur­rency built up by UK trav­ellers will have reached an es­ti­mated £902 mil­lion by the end of the year, ac­cord­ing to a sur­vey by Visa.

It found that al­most a quar­ter of hol­i­day­mak­ers had at least £50 in for­eign cur­rency at the end of their hol­i­day, TAX­PAYER-BAcKED Lloyds Bank­ing Group re­ceived al­most 300,000 cus­tomer com­plaints in the first half of the year but re­jected nine in ten of them, it said this week.

It closed 715,458 com­plaints in the first six months of the year, af­ter the end of the test case on unau­tho­rised over­draft charges en­abled it to re­ject thou­sands of com­plaints that

De­mand for per­sonal loans fell over the same pe­riod, with searches down by 14 per cent in the sec­ond quar­ter com­pared to last year as con­sumers fo­cused more on pay­ing down debts than adding to them, ac­cord­ing to Ex­pe­rian.

Pic­ture: Getty

Aviva is among the firms to have cut their an­nu­ity rates this week

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