July 31 2014 Latest news:

New figures suggest that annuity rates have plummeted further in the past few months, adding to the headaches faced by hundreds of thousands of retirees.

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A fall of 3pc in annuity rates since June –the steepest drop for a year – means they have gone down by 5.8pc since the middle of 2010.

“These findings will put even more pressure on those people in or approaching retirement as they are faced with the reality of living longer, rising inflation and falling annuity rates,” said Aston Goodey, of MGM Advantage, which compiled the statistics.

“And the market volatility of recent months and weeks means the size of consumer pension pots have also fallen, giving this group of customers even less money with which to buy an annuity in order to generate an income for the rest of their life.

“Consumers really need to do their homework at this crucial stage of their life, and that’s why simply drifting into an annuity with their existing pension company can be so financially damaging.”

Mr Goodey said he thought the falls in annuity rates would continue, combined with the double-whammy of high rates of inflation.

“Since launching our annuity index in June 2009, it has fallen seven out of the eight times it has been updated,” he said.

“As people live longer, the long-term outlook for annuities is one of overall falling rates. This makes it all the more important to shop around for the best deal when buying an annuity as the difference between the best and worst rates can be large.”

Annuities are what many retirees buy with their pension pots. In return for handing over their savings, these people receive a monthly income for life.

But because life expectancy has risen so much, the insurers that offer annuities are having to make these monthly payments for longer, which is the main reason for the falls in annuity rates.

The rates vary between providers, which is why it’s important to shop around for the best deal, and people with certain health conditions or a lower life expectancy often qualify for higher payouts, or enhanced annuities.

According to MGM Advantage, the difference between the average standard annuity and the average enhanced annuity rate is 18pc, so it is certainly worth letting pension providers know if you think you qualify for an enhanced deal.

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