Annuity rates have fallen below 6pc for the first time in 20 years as a result of falling bond yields, increased longevity and the impact of Solvency II.
A typical couple buying an income for life with a £100,000 pension pot would have received £6,080 in April, according to annuity specialist Billy Burrows of Burrows. But just two months later, the income they would receive has fallen to £5,860, the Telegraph reports.
"This is the first time rates have fallen below 6pc in the 20 years I have seen records for, and possibly longer," Burrows said.
Insurers that have cut annuity rates include Prudential, Legal & General, Standard Life, Aegon and Canada Life, the paper reports.
Burrows said there were three main reasons behind the reduced returns. "First, bond yields have fallen in line with low interest rates. Retired investors are paying the price for bankers getting it so wrong in the run-up to the credit crisis.
"Increased longevity is another factor. Then there are the new EU rules called 'Solvency 2' that are causing insurers to take a more conservative approach, which they are building in to their annuity pricing."
He said savers should not expect annuity rates to improve soon and people wanting a higher income from their pension savings would have to accept higher risk.
They could think about using some of the newer products in the sector such as the Pru's Income Choice or a Flexible Annuity from MGM which offer scope for capital growth along with an income, Burrows says.
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