The Bank of England’s (BoE) emergency decision to cut the base interest rate from 0.75 per cent to 0.25 per cent means annuity rates are "likely" to also be reduced, Aegon has warned.

Aegon pensions director, Steve Cameron, stated that the market disruption caused by coronavirus could see people close to retirement lose value from their pension pots in a "double whammy" of rate reductions.

The BoE announced the interest rate cut to try and stabilise the economy amid the coronavirus outbreak, with the Monetary Policy Committee voting unanimously to slash the bank rate by 0.5 percentage points.

The bank hopes that it will free up billions of pounds in lending to help banks support businesses.

However, Cameron warned that it could result in those approaching retirement seeing their pension pot fall in value.

He commented: “We hope the emergency 0.5 per cent cut in the bank’s base rate will support businesses and consumer confidence through the coronavirus crisis. This should reduce the cost of borrowing for businesses and individuals during what we hope will be a short-term period of disruption.

“It does, however, pose particular challenges for those approaching retirement. The recent fall in the stock market will mean those whose pension is primarily invested in stocks and shares will have seen their pension pot fall in value.

“The reduction in interest rates creates a double whammy as annuity rates are also likely to be cut.

“As a result of the pension freedoms, individuals with defined contribution pensions now have flexibility over when they start taking a retirement income and can choose to remain invested, drawing an income, rather than buying an annuity.

“While there is no guarantee around if and when fund values and annuity rates will bounce back, individuals about to retire might want to seek advice on their options, including potentially deferring locking into annuities at a particularly adverse point in time.”

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