Annuity rates for a 65 year old have fallen by 14 per cent since the start of 2019, in what has been described as a “horror show” by Hargreaves Lansdown senior analyst Nathan Long.

Annuity rates have only ever spend nine weeks at a lower level; £100,000 pension now buys a 65 year old £4,654, which is £759 less than at the beginning of the year. Rates have changed 46 times in 2019 – they’ve mostly been down.

Commenting, Hargreaves Lansdown senior analyst, Nathan Long, said: “This year has been nothing short of a horror show for soon-to-be retirees. Annuity rates have been cut with great regularity with the best on offer now 14 per cent lower for a 65 year old than at the start of the year. Fears of a no-deal Brexit and a slowdown in the global economy have increased the cost of buying the secure investments that insurers use to underpin annuity payouts,” he explained.

He advises that anyone approaching retirement needs to choose their options wisely.

“It’s unlikely to be best to buy an annuity when you’re still working, but when you finally retire permanently a combination of secure income to cover the essentials and drawdown for the nice-to-haves is a solid approach. For those who just cannot bring themselves to buy an annuity at these low levels, taking only the income produced by your pension investments is a sustainable way of drawing from your pension.”

“Using tranches of your pension to buy annuities as you get older helps you to spread the risk of buying when annuity rates are low. You can benefit as annuities generally pay more as you get older and any health conditions that develop can be factored in which can also boost the payouts.”

Hargreaves Lansdown stated that the next step for annuity rates is hard to pinpoint due to the current uncertainty around Brexit and how relations between China and America will progress.

It believes that rates could improve if there was a Brexit inspired downgrade of UK government debt, although last time a downgrade was applied gilt yields did not change significantly.

If the Bank of England cut interest rates, there may be downward pressure on gilt yields and therefore on annuity rates as a result. Hargreaves Lansdown stated that even without Brexit, annuity rates could fall further. Yields on some European government debt is already at negative levels.

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