Enhanced annuities dropped by 5% to around £7,000 during the last 12 months to the end of September, revealed research by My Pension Expert.
The retirement income specialist focused on a 64 year-old with a pension pot of £100,000 that qualified for enhanced rates as a result of having high blood pressure, smoking and drinking excessively. The firm revealed that in September last year this person would have received £7,332 but the best rate now available is £6,964, a drop of £368 or 5.019%.
My Pension Expert said the drop was driven by the significant reduction in the 15-year gilt yields, which had a major influence on annuity rates, as well as a reduction in the demand for annuities since the March Budget announcement that retirees would be granted greater freedom over how they could spend their pension pot.
My Pension Expert director Scott Mullen said: 'A fall in enhanced annuity rates is to be expected given the factors that are in play at the moment. Rates are more volatile than ever as the current market remains on shifting sands until the new pension freedoms are introduced next April.'
My Pension Expert also highlighted that changes outlined in the Budget saw the demand for enhanced annuities drop for those with poor health. Many had chosen to refrain from buying an annuity because they felt they would not live long enough to see a return, the firm noted, adding that these people were exploring other avenues that freedoms had opened up.
'This would explain why there is only a marginal 0.292% difference between the top standard annuity on the September 24 [last year] and of September [this year], compared to the enhanced drop,' the retirement experts added.