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Annuity rates rally after tough few months

Annuity rates rally after tough few months

Category: Annuities

Updated: 08/11/2016
First Published: 08/11/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Good news for those seeking a secure income in retirement: our latest analysis of the annuity market has revealed that annuity rates are staging a mini revival after suffering some heavy falls during the third quarter of the year, so you'll now be able to get slightly more from your years of saving.

Higher rates = higher incomes

The figures, based on a £10,000 pension pot, show that the average annual income a 65-year-old could achieve with a standard annuity (level without guarantee) has risen by 4.3% since September, recovering from its all-time low and returning to levels last seen in July.

This revival follows a particularly tough third quarter. Indeed, the latest Moneyfacts Personal Pension and Annuity Trends Treasury Report revealed that average annual standard annuity income fell by 6.4% and the average annual enhanced annuity income by 10% over the three months to the end of September, so the latest boost will come as welcome news to those considering an annuity.

However, unfortunately it isn't all good news. Despite the recent annuity rate rally, average standard annuity income is still down by 11.6% since the start of the year, while average enhanced annuity income stands 15% lower, making 2016 the worst ever year for annuity rates.

"The already testing economic environment for annuity providers deteriorated even further during the third quarter," explains Richard Eagling, head of Pensions at Moneyfacts, "as the impact of the EU referendum result and then the Bank of England's base rate cut and extension of its Quantitative Easing programme triggered large falls in gilt yields.

"However, gilt yields have since recovered, providing annuity providers with more room to manoeuvre when setting their annuity pricing."

Tipping point

Richard went on to explain that we'd reached a "tipping point" in recent months, whereby annuity rates had fallen to such an extent that many retirees no longer saw them as value for money, even though they continued to provide the security they desired. Instead, retirees have been delaying annuitising until rates recover, or even looking to secure higher returns by opting for riskier alternatives, such as investing in the stock market.

Now that annuity rates are showing signs of recovery, it could signal a change in opinion among new retirees. As Richard says, "it will be interesting to see whether these latest annuity income rises are enough to convince them to return to annuities in order to fix their incomes for life," and at the very least, it should encourage them to rethink their situation.

After all, annuities are the only way to guarantee a secure income for the duration of your retirement – other options mean you run the risk of running out of money in later life, so even if you only use a portion of your savings for an annuity, it could still be worth considering. Find out more about your retirement options since the pension freedoms (and the associated risks) here, and if you think an annuity could be the way to go, contact our no obligation planning service for more details.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.