Last month we looked at Annuity rates and asked when they might start to rise. A month is a long time in the financial world so we thought we would take another look.
We concluded last month that there were no reasons to think that Annuity rates will rise in the short term; four weeks later do we see any signs that we were wrong and that Annuity rates might take an unexpected turn for the better?
The bad news is that we still can’t see any reasons why Annuity rates might start to rise. In fact, the situation may have got even worse.
Gilt yields, which have a huge affect on Annuity rates, are still falling. That might put a smile on the face of George Osborne, but it does nothing for your retirement income and we have seen a number of Annuity providers cut rates even further over the past couple of weeks.
As we mentioned last month, the problem of falling Gilt rates is compounded by Solvency II legislation and also the inability of insurers to discriminate between men and women when setting Annuity rates from next year onwards.
There is though another factor which could make matters worse.
The economic and debt crisis which has gripped Europe in particular over the past few weeks is starting to have a severe impact on people in the UK wanting to retire now. Firstly we have seen increased stock market volatility over recent weeks. On one single day in September over £60 billion was wiped of the value of companies on the FTSE. If you are still invested in stocks and shares, this volatility will have a knock on effect on the value of your pension, potentially leaving you with less money to buy your Annuity.
If this wasn’t enough it also has an impact on Annuity rates.
As investors move from stocks and shares, worried about further stock market falls, they look for safe havens where they hope the value will not fall further. UK Gilts are proving a very popular safe haven at the moment. When something becomes more popular it goes up in price. This in turn pushes down the yield on a Gilt, which is fixed, and has on a knock on effect on Annuity rates.
So the bad news is that we now have a fourth reason to believe Annuity rates will not rise in the short or even medium term.
None of this is helpful if you are planning to retire soon. It is therefore crucial to take good quality independent financial advice to make sure you are making the right decisions. An Annuity is only one option: there are many more. Taking advice will mean you choose the right one, and if that turns out to be an Annuity your adviser will do their best to make sure you get the best rate possible.
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