Equity release specialist Key Retirement Solutions claimed many savers are may lose up to £5,000 for delaying purchase of their annuities in the hope of seeing their pension savings recover.
Following FTSE100’s slump of 12 per cent in the last two months, many individuals are concerned over the shrinking size of their pension pots and are delaying their annuity purchase, hoping their investments will recover soon, said the provider.
Annuity rates have fallen by about three percent over the last two months with a pension fund worth £100,000 now generating about £6,624 annually, a loss of £207 each year compared with £6,831 on average per annum, adding up to £5,000 over 25 years.
The loss may be aggravated further as analysts predict further fall in annuity rates. Rates have fallen by 20 per cent in the last three years alone.
Pensioners stand to lose another £200 per annum if rates fall an extra 3 per cent in the next three months.
The specialist further added that a number of savers reaching retirement will transfer their pension funds to safer investments to guard against stock market volatility. Delaying buying annuity will cost them future incomes without any fund value appreciation, the firm observed.
“Pensioners have to literally live with the decision they take on an annuity and delaying can mean ensuring a lower income for life,” said Dean Mirfin, group director at KRS.
“People coming up to retirement are generally panicking unnecessarily over the effects of volatility on their funds when they should be concentrating on annuity rates and getting the best deal possible. What has to be taken into account is not just the effect of falling annuity rates, delay also means that income that would have been paid out today, if the annuity was bought now, is lost for good,” added Mr. Mirfin.