UK pensions: People need to shop around for an annuity, as difference in rates at upper and lower end of the market for a standard annuity is 17 per cent

An investment company has urged those purchasing an annuity to shop around, as it today revealed figures that showed the average annuity rate had dropped off in the last quarter.

The analysis by Retirement Advantage found that the average annuity rate fell by 3.2 per cent in the final quarter of 2015, thanks in part to the impending introduction of Solvency II.

The research also discovered that the difference between the lowest and highest market rate for a standard annuity was 17 per cent, meaning an annuity purchased for £50,000 at the lower end of the market would yield about £8,484 less across the course of an average retirement compared to an annuity with the same purchase price at a rate at the higher end of the market.

Meanwhile, the difference between the highest and lowest market rates for an enhanced annuity is 11 per cent.

“Annuity rates have been affected by the perfect storm of near historic low gilt yields, along with insurers pricing in the extra capital required to be compliant with the Solvency II regulations,” said Aston Goodey, director of distribution and sales at Retirement Advantage. “Providers have been moving to Solvency II pricing at different speeds, so there may be more price moves to come than the data provided in this report.

“We seem to have lost the importance of shopping around, with less people actually looking for the best deals than previously. This only serves to reinforce the importance of seeking advice. The difference between the best and worst rates can often be huge, and this can make a significant difference over the course of a retirement.”