Annuity rates hit by double whammy

Savers face continued short-term annuity uncertainty as fluctuating gilt rates and inflation hit the annual payments offered by product providers.

Figures from Alexander Forbes Annuity Bureau show that several insurers decided to cut single-life and inflation-linked annuity rates in February.

The analysis, which is based on a 60-year-old male with a £100,000 pension pot, shows Aviva reduced its single-life level annuity rate by £160 from £5,590 in January to £5,430 in February. Legal & General cut its single-life rate by £172 from £5,420 to £5,248.

Aviva lowered its inflation-linked annuity rate by £230 from £3,150 last month to £2,920 this month. Standard Life cut its rate by £72 from £3,094 to £3,022 during the same period.

Smokers’ rates were largely stable, although LV= cut its rate by £104 from £6,582 to £6,478, while Aviva increased its rates by £150 from £5,910 to £6,060.

Alexander Forbes Annuity Bureau head Gemma Goodman says: “Providers are adjusting their books with one eye on inflation ahead of the Bank of England’s quarterly inflation report and another on gilt yields, which could continue to fall if the Greek bailout talks fail or bounce if the equity rally continues.”

Hargreaves Lansdown head of advice Danny Cox says: “The downward pressure on annuity rates continues to prevail. Annuity rates may improve but it is difficult to know when and by how much. Those who need to annuitise in the short term should get on with it as rates might fall further.”