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Annuity rates 'dwindled for retirees in 2012' Annuity rates 'dwindled for retirees in 2012'
(1 day later)
The rates for annuities - products which provide an annual retirement income - have dwindled to their lowest level for years, a report says.The rates for annuities - products which provide an annual retirement income - have dwindled to their lowest level for years, a report says.
The average annual income for a 65-year-old man buying a standard annuity dropped by 11.5% in 2012, financial information service Moneyfacts said.The average annual income for a 65-year-old man buying a standard annuity dropped by 11.5% in 2012, financial information service Moneyfacts said.
This was the biggest drop since 1998.This was the biggest drop since 1998.
Meanwhile the Prudential said that this year's retirees expected to receive £3,400 a year less than workers who retired in 2008. Meanwhile the Prudential said that this year's retirees expected their income to be £3,400 a year less than workers who retired in 2008.
Those buying an annuity in 2013 thought they would receive a guaranteed typical annual income of £15,300, according to a survey for the insurer. The gap becomes much worse when taking into account the effects of inflation eating into people's budgets.
This expectation is considerably higher than the average annuity that is actually paid out, and the gap becomes much worse when taking into account the effects of inflation eating into people's budgets. Those retiring in 2013 thought they would receive an annual retirement income - from all sources of pensions and investments - of £15,300, according to a survey for the insurer.
A pension annuity converts the funds built up in a pension scheme into a regular income. The income is then payable for the rest of the policyholder's life.
Regional differencesRegional differences
The Prudential survey also suggested that retirees expected a different level of annuity depending on where they lived, with a £5,700-a-year difference between the areas with the highest and the lowest anticipated incomes for people retiring this year. The Prudential survey also suggested that retirees expected a different level of retirement income depending on where they lived, with a £5,700-a-year difference between the areas with the highest and the lowest anticipated incomes for people retiring this year.
Londoners expected to retire on an annual income of about £18,200 this year, while retirees in the West Midlands had the lowest anticipated incomes, at £12,500, it said.Londoners expected to retire on an annual income of about £18,200 this year, while retirees in the West Midlands had the lowest anticipated incomes, at £12,500, it said.
Meanwhile, Moneyfacts said that average annuity income had fallen in 15 out of the last 18 calendar years.Meanwhile, Moneyfacts said that average annuity income had fallen in 15 out of the last 18 calendar years.
A pension annuity converts the funds built up in a pension scheme into a regular income. The income is then payable for the rest of the policyholder's life.
Tom McPhail, head of pensions research at financial services company Hargreaves Lansdown, said: "As a result of the economic downturn, living standards have stagnated across much of society but those approaching retirement have been particularly hard hit.Tom McPhail, head of pensions research at financial services company Hargreaves Lansdown, said: "As a result of the economic downturn, living standards have stagnated across much of society but those approaching retirement have been particularly hard hit.
"Annuity rates have fallen by a third in just four years. For people approaching retirement, that is a huge blow to their expectations at a time when it is probably too late for them to do anything about it.""Annuity rates have fallen by a third in just four years. For people approaching retirement, that is a huge blow to their expectations at a time when it is probably too late for them to do anything about it."