Annuity rates have fallen to all-time low levels due to a sharp fall in gilt yields and a drop in demand since the introduction of pensions freedom and choice, according to Moneyfacts research.
The website said retirees who had delayed making a retirement income decision ahead of pensions freedom would now be counting the cost of delay if they now chose to buy an annuity contract.
It said annuity providers faced “challenging pricing conditions” due a sharp fall in gilt yields and lower demand due to pensions freedom. Annuity rates have been cut dramatically as a result, it added.
The average annual income payable from a standard annuity fell by 5.7% in 2014. Moneyfacts said there had been an even more marked decline in 2015.
The average annual income payable on a single life standard level annuity, without guarantees, for a 65-year-old with a £10,000 pot has fallen by 5.9% since the start of the year and by 6.4% for a £50,000 pension pot.
Annuity rates, it added, are now at their lowest ever level, surpassing the previous record lows of November 2012 caused by the introduction of gender neutral pricing in December 2012.
Moneyfacts head of pensions Richard Eagling said: “The prospects of securing a comfortable retirement have taken a further blow with news that standard pension annuity rates have hit an all-time low.
“In many cases, retirees looking for a secure income now face the unenviable position of annuitising at the lowest point in the product’s history.”
He added: “This is particularly unfortunate for those individuals who may have deferred making a choice until the introduction of the pension freedoms but have since decided that an annuity is still the most suitable product for them.
“Could we be about to see a wave of new annuity business hitting the market at a time of record low rates in the same way that many individuals rushed to annuities before the introduction of gender neutral pricing, only to unwittingly fix their incomes in at the previous all-time lows?”
Enhanced annuity rates have been slightly more resilient than standard annuities in 2015, however, they have also seen sizeable reductions.
The average enhanced pension annuity rate (level without guarantee) for an individual aged 65 has fallen between 5.3% and 6%, depending upon the purchase price, since the start of the year, Moneyfacts said.
Enhanced annuity rates are now at their lowest levels since April 2013, it added.
Annuity expert Billy Burrows said annuity rates hardly changed from the beginning of the year to now although the 15 year benchmark gilt yield rose from “a very low level of 1.76 in February to a more respectable 2.01 % on 22 April”.
Burrows added: “The reasons for the low rates in yields is the relative strength of the UK economy compared to the rest of the world coupled with very low inflation.
“It is probably fair to say that a change of government may cause some uncertainty in the financial markets which may push the cost of borrowing upwards and this would probably trickle through to higher annuity rates.
“The new freedoms have played their part in keeping annuity rates low because the reduction in sales, especially those in good health, will have upset the mortality cross subsidy calculations thereby reducing the insurance element of annuity payouts.”