It has been a bad year to retire. Not only will many retirees have missed out on the market recovery but annuity rates have been falling too.
Annuity rates fell by an average of 8 per cent last year, which is the biggest fall since 2002, when rates fell by 12 per cent, according to annuity specialist Billy Burrows.
In January 2009, a £100,000 joint-life annuity for a man aged 65 and woman aged 60 with two-thirds spouse pension and level payments paid would get £6,439. By the time December came round, the same annuity would have paid £5,897.
It could have been even worse, depending on where you lived . Someone living in Gordon Brown’s constituency would have retired on an annual income of £449 a year while someone living in David Cameron’s constituency of Witney would have had to settle for £6,362.
This postcode lottery is just one of the debates over annuities, another being the open market option. There is also the issue of joint annuities, a matter raised recently by the Association of British Insurers.
Taken at face value, it would appear that men are a selfish bunch. It could be that up to two-thirds of men retiring this year will not consider their wife when they buy an annuity.
Even though they have a greater chance of meeting their maker before their loved one, they will buy an annuity whose income tap will turn off once they die, leaving their wife in the lurch – or at least worse off.
This has been a problem for some time. Indeed, so worried were Age Concern that they went on record three years ago blaming “selfish” husbands for not providing for their wives. It made a great headline and great copy but it hides the seriousness of the issue.
You have to sympathise with women. First, they tend to outlive men by around five years, yet women have long been dealt a duff hand when it comes to pensions. Just 17 per cent of women have a full basic state pension compared with 78 per cent of men, for instance.
The status quo remains to this day, with the vast majority of pensioners opting for a single life annuity when they come to take their pension. Standard Life informs me that two out of three of its retirees opt for a single life annuity and the ABI backs up that figure.
Whether the decision to opt for a single life annuity is taken for selfish reasons is a controversial point. It has probably got more to do with lack of knowledge or the realisation that you have not saved enough for retirement or that you get more bang for your buck.
It could also be that the default option from insurers to would-be pensioners just happens to be a single life annuity. The suggestion that a joint annuity should be offered as a default also seems to have some mileage.
Naturally, when people take advice and are informed of their options, they tend to buy a joint annuity. The problem is that most do not seek guidance or even trawl the market for a better solution than the one offered by their pension provider.
It is why the ABI is to be applauded for its paper on updating some of the pension rules. Allowing people with small pension pots, of which there will be plenty, to join forces with their respective partner’s pension pot seems a solution that kills two birds with one stone.
It could allow pensions to benefit from the open market and it could get husbands and wives talking about their options. In the day of equality, it makes perfect sense.
Paul Farrow is digital personal finance editor at the Telegraph Media GroupMoney Marketing