Retirees thinking of using their pension to buy an annuity to fund their retirement are advised to buy sooner rather than later

This article is more than 4 years old

This article is more than 4 years old

The first direct hit on pensions from Brexit came on Monday morning, as pension companies began to cut the amount they will pay people who are newly retiring.



Just Retirement and Retirement Advantage have both announced cuts to their annuity rates, and experts said more were likely to follow. Just Retirement’s rates are down by around 2%.

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An annuity is a product available for retirees and offers an income for life, bought at retirement with all or part of a person’s pension savings.

The returns available reflect movements in interest rates, and since Brexit the money markets have signalled lower long-term rates.

Tom McPhail of financial advisers Hargreaves Lansdown said: “Gilt yields and annuity rates have been dropping steadily over the past year. The events of the past couple of days have given new momentum to that trend.

“For any investor planning to buy an annuity in the immediate future, it may make sense to do so sooner rather than later. Once you’ve obtained a quote from an annuity company the terms are usually guaranteed for between two and four weeks.”



McPhail said those who wanted an annuity should shop around for the most competitive terms. He added: “If you want to delay purchasing an annuity, but need to draw on your pension savings, then look at drawing an income from your funds using a drawdown arrangement instead.”

But the flipside of falling annuity rates is likely to be lower interest rates on mortgages. Moneyfacts, which compiles a daily moving index of the average two-year fixed-rate deal, said rates fell marginally on Friday.

Mortgage experts such as Ray Boulger of John Charcol have already suggested that longer-term fixed-rate deals will emerge in the coming days priced at lower levels than last week, reflecting falls in gilt yields.

