Nicoll Financial Solutions Limited

People looking to retire after 2012 have been warned they could face annuity rates almost 30% lower than are available today. The introduction of new EU legislation aimed at reducing perceived risk within pension firms is set to have a profound effect on the retirement income of hundreds of thousands of British pensioners, according to Annuity Direct. Under Solvency II, life companies will be obliged to value their annuity liabilities using government gilt rates, rather than the current preferred option of corporate bonds, which give a higher yield. As a result of the lower income, insurers will have to hold more capital to meet their annuity payout liabilities, with the knock on effect that annuity rates will fall. Most insiders believe this could result in a drop of anywhere between 20% and 30%. The warning comes shortly after Moneyfacts revealed that pension incomes had dropped 72% over the last decade. Bob Bullivant of Annuity Direct believes anyone currently at retirement age and eligible to swap their pension fund for an annuity income should not delay in the hope that the current poor rates will improve. "Pensioners need to be aware that if they defer their annuity purchase, they now need to take account not only of the loss of income during the deferral period, but also the probability of a fall in rates in the not too distant future.