Annuity rate climb to continue?
If you took out a pension annuity last year, bad luck. Annuity rates have climbed 5.6% since the start of the year, claims MGM Advantage. That 5.6% rise pushes an annual £5,230 income from a £100,000 pension pot to £5,524 - almost £300 extra.
More rises to come? Or should you take the plunge while the going has - somewhat - improved?
Reprieve short-livedDon't expect recent rises to continue at the same clip. In the last three years rates have fallen by around 15%. Meaning someone would need a pension pot worth 24% more today to generate the same annuity income as someone who retired three years ago says MGM.
Wind back to the mid 1990s and the fall is even more dramatic. Annuity rates have been hit by a combination of factors: better longevity, uncertainty about the introduction of gender neutral pricing (introduced by the EU to ensure women got better rates) and rock-bottom government gilts, which determine annuity rates.
Desperately seeking income"With new players also coming into the enhanced market," says Aston Goodey at MGM Advantage, "we may see rates pushed up in the short term. But looking ahead to the longer term we are unlikely to reach the level of rates seen five years ago.
UK government gilts have, in fact, risen recently. But recent comments from new Bank of England governor Mark Carney have dashed hopes of an interest rate rise, which would have led to a gilt uptick, and therefore a rise in annuity rates.
The trick of timingLike stock market investing, timing an annuity purchase is difficult. Those on the verge of retiring can help themselves by shopping around for an annuity, rather than plumping for the rate offered by their pension company (once you've made your decision, there's no going back).
Alternatively, the case for holding your pension in cash, taking income, is growing. (The draw-down strategy was once more commonplace for sophisticated investors.)
Or, hold off. The older you get, the better the annuity you get. Especially if your health deteriorates.
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