The 2009 economic downturn in the UK was particularly bad news for would-be retirees and pensioners.

The chart below from William Burrows compares annuity rates (£100,000 investment purchase) with the performance of the London Stock Exchange’s benchmark FTSE 100 index.    

Annuity rates fell sharply as economic conditions worsened. The Bank of England cut interest rates sharply (they remain very low), which is believed to have been one of the factors behind the drop in annuity rates as the return on investment on government stock fell.

Falling annuity rates are clearly bad news for pensioners. In the simplest terms, this means that pensioners will have less money for retirement than they would have previously when annuity rates were higher.

Annuity rates do of course depend on other factors too like your gender, health, and your age. Like other products, insurance companies look to determine your risk profile. Women have higher life expectancies than men so they therefore typically have lower annuity rates. 

With annuity rates still much lower than their mid-2008 peaks on the three year timescale shown on the chart, it is probably as important as ever that those looking to purchase annuities get professional advice and take time to carefully compare products in the open market.

According to Nigel Callaghan of the BBC’s money talk, consumers lose out on about £400mn per year because they make poor decisions with their annuities.

Economic Downturn Bad For Pensioners

Source: William Burrows