Pension savers have been warned they are likely to receive less guaranteed income from their annuities once the Bank of England reduces its base rate.
The caution comes from Hargreaves Lansdown, which predicts firms will lower their annuity rates following any future base rate cuts.
The warning suggests those looking to secure a guaranteed retirement income could face reduced returns in the coming years.
This development affects those considering converting their pension savings into a fixed annual income through an annuity.
The Bank of England maintained its base rate at 4.75 per cent in its December announcement. Currently, a 65-year-old with a £100,000 pension pot could receive up to £7,345 annually, according to Hargreaves Lansdown’s calculations.
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This figure applies to a single life annuity with specific conditions: it must be guaranteed for five years, paid monthly in advance, and without any increases.
The calculation is based on an individual living in an average postcode area. These rates were revealed as part of the Bank’s latest base rate decision last month.
Lily Megson, policy director at My Pension Expert, warned that inflation remains a persistent concern.
“Inflation is proving sticky, and while the base rate is predicted to drop throughout 2025, the Bank of England will not rush these decisions,” she said.
She highlighted the important choices facing those approaching retirement. “Savers, particularly those nearing retirement, will need to consider the coming year and factor in fluctuating interest rates as they pursue their financial goals,” Megson explained.
She noted that some individuals might look to capitalise on current high interest rates. Others may be considering longer-term strategies for growing their pension pots.
However, Megson emphasised that these decisions should not be made in isolation. She stressed that consumers deserve protection against changing economic conditions.
“Consumers should not be left exposed to changing macroeconomic headwinds,” Meson stated. She called for increased Government involvement in financial planning support.
“The Government must step up to ensure people are supported in their financial planning by delivering better access to financial support, education, guidance and advice,” Megson explained.
These recommendations come as pension savers face potentially significant changes in annuity rates. Looking ahead to 2025, Megson emphasised the continuing importance of professional guidance.
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Earlier this month, the Bank of England voted to keep the base rate at 4.75 per cent
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“In 2025, independent financial advice will remain essential for millions of people,” she stated.
She highlighted the role of policymakers in encouraging retirement planning.
These officials have a “key role to play in encouraging the UK public to engage with their retirement plans,” according to Megson.
The ultimate goal is “empowering people to achieve their financial goals”.
