Following the announcement that the Government would be issuing more Gilt Edged Securities (gilts) to keep up with their spending, many industry commentators expected annuity rates to rise. But, the rise has not taken place across the board with some providers increasing their rates but others actually decreasing them. This move was unexpected but it now seems that annuity providers have their own agenda and differing views of the markets.
Years ago, rises would have been seen across the board if the Government had increased borrowing. However, now the added complications of increased life expectancy and worries over the stock market have to be taken into account by annuity providers.
Some will see it as a positive move and increase rates and others will be negative and decrease rates.
Our View
The key to buying your annuity is not to wait too long, expecting annuity rates to rise dramatically. We do not believe this will happen. The knock-on effect of longevity and stock market worries is inflation and how it will affect annuities in payment during the longer term.
For example, if you use your pension fund to purchase an annuity that does not increase each year, immediately inflation will start to eat into the real value of your income.
You can choose many different ways to receive your annuity and can completely inflation link it. But, you are likely to start off with a lower pension amount.
Our advice - don't ignore inflation.