Annuity Rates Tumble as Life Expectancy Rises

Compounding the effect of reduced investment returns in recent years, annuity rates are also falling because of increased life expectancies for both men and women, according to a recent report.

The effect of the increase in life expectancies has meant that the capital sum on which the annuity is based has had to provide for a longer period. Ten years ago, a female aged 65 had a life expectancy of a further 21 years and a male 18 years. Today, these figures are 24 years and 21 years respectively. With the gap in life expectancies between men and women narrowing, the annuity rates on a joint life basis (where typically a man’s pension is accompanied by a reduced rate pension for his spouse if she survives him) are also falling. The available annuities for 65-year-olds have fallen by around forty per cent over the last decade.

Lastly, the effect of legislation which gives same-sex couples pension rights which were previously the preserve of married couples will also mean more pensions have ‘survivor rights’ and thus will not end with the death of the annuitant. Again, this will have the effect of reducing rates.

These changes make planning for one’s retirement more critical than it has ever been before and something to which serious thought should be given.

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