Pension experts have warned retirees face more annuity pain next year as the third quarter of 2012 saw record falls in the rates offered by providers.
According to analysis conducted by MGM Advantage, conventional annuity rates fell by 7 per cent between June and September, while enhanced rates dropped by 5 per cent.
This means the average conventional annuity a person with a £50,000 pension pot can buy has been cut from £2,853 at the end of June to £2,653 at the end of September. This represents the largest three month fall since the provider started monitoring rates in August 2009.
MGM says over the past three years, average annuity rates have plummeted by 20 per cent.
MGM Advantage distribution and marketing director Aston Goodey (pictured) says rates are likely to drop further as a result of Solvency II, which will force insurers to hold more capital.
The EU gender directive, which will ban providers from offering gender-specific annuities, is also expected to lead to a fall in male annuity rates.
Goodey says: “Annuity rates are in free fall, largely driven by record low gilt yields. Annuity providers have yet to fully price in the effects of Solvency II or the EU gender directive so we are expecting further falls over the coming months unless we see a significant upward movement in gilt yields.”
Barnett Waddingham consultant Malcolm McLean says: “We must now be heading towards a tipping point where annuities barely return the capital given up over an average life expectancy and thus in the eyes of most people represent an unacceptably poor investment of their pension savings.
“At a time when millions are being enrolled in pension plans that culminate in the purchase of an annuity, this sends out some very negative vibes and risks jeopardising the success of the entire auto-enrolment project.”