Rate cut 'will hit annuities'

07/11/2008

Annual retirement income for pensioners could decline by ten per cent thanks to the Bank of England's shock interest rate cut yesterday.

Independent Financial Advisor (IFA) Hargreaves Lansdown suggested yesterday that the brunt of the 1.5 per cent rate reduction would be borne by the one million people due to retire in 2009.

This group will convert their pension pot into an annual income by taking an annuity - whose rates currently stand at an unusually high average of 7.75 per cent.

However, annuities rates will be hit hard by the Bank of England's cut - possibly to below seven per cent - meaning that pensioners will be forced to retire on much less.

Nigel Callaghan, pensions analyst at Hargreaves Lansdown, said: "Annuities can only defy gravity for so long.

"With most indicators pointing to dramatic annuity rate falls, many investors are deciding to lock into today's rates, which are still at a six-year high point."

Figures from the IFA show that a 65-year-old man with a pension pot of £100,000 could see his potential retirement income drop £15,000 over his lifetime, thanks to the rate reduction.

Tags; Debt Management and Banking, Retirement Money Problems,

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