Falling annuity rates bigger risk to retirees than market volatility

Falling annuity rates could prove a greater long term risk than stock market volatility warns Key Retirement Solutions.

The annuity adviser has received a surge of calls from people looking to delay annuity purchase as they panic about the effect of market volatility on their pension fund.

While the FTSE 100 has slumped 12% in the past two months annuity rates have fallen around 3% during the same period. This means an average £100,000 fund now generates £6,624 a year compared with £6,831 - an annual loss of £207. This can cause an income loss of £5,000 over 25 years.

Analysts predict further falls in annuity rates - they have dropped 20% in the last three years. A further 3% fall in annuity rates over the next three months could cost pensioners £200 a year.

Group director Dean Mirfin said: "Pensioners have to literally live with the decision they take on an annuity and delaying can mean ensuring a lower income for life.

"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."