Annuity Rates on the Rise?
Timing an annuity purchase can be a difficult decision – buy now and you could risk missing out on rising rates; delay and you could end up with a worse rate in the future. There seem to be mixed signals in the annuities world at the moment, leaving many older people with a dilemma – should they buy now or wait and see what happens?
There are encouraging signs that annuity rates are starting to rise – a welcome development for older people who have saved for years for their retirement.
Annuities are purchased in order to turn pension savings into annual retirement income – and they hit a record low point last summer. However, several of the major annuity providers have increased their offers in recent times. Annuity rates tend to move up or down in line with the interest paid by the Government on the bonds it sells to investors. This interest rate is called the gilt yield, and annuity rates reflect the yield on certain types of gilts.
This year, rising gilt yields have, in some circumstances, led to increased annuity rates. But as Danny Cox of Hargreaves Lansdown points out, there can be a delay between gilt yield movements and shifts in annuity rates. “Most insurance companies have not re-priced following the rise in yields over the last couple of months,” he says. “Annuity rates had risen by around 1% since May, when gilt yields had risen by around 40%. Now yields are falling again, I’d expect insurers to delay re-pricing rates – or not bother at all.”
Not all doom and gloom
However, there are those who temper Cox’s statements with a more positive outlook on the annuities market. “On my calculations there is plenty of room of an increase in annuity rates if yields stay at current levels,” said Billy Burrows, of the Better Retirement Group, adding that rates were on an upward trend. However, he also cautioned against holding off on the purchase of an annuity, stating that delaying the purchase of an annuity by betting on a rise could be a bad move.
“If rates do improve it will be probably be a slow process,” he said. “Generally speaking, those considering an annuity purchase should take as much time as they need to make their decision – but once a decision has been made it normally makes sense to invest in the annuity without delay.”
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