Annuity Rates All Time Low

Annuity Rates Hit All-Time Low.

Figures released by Moneyfacts have suggested but in just a matter of a few weeks after the new flexible pension drawdown rules started in direct competition with annuities, annuity rates overall for pensions have it an all-time low.

Traditional annuity providers suffered a dramatic fall in pension business after the budget in 2014 when the new pension flexibility rules were announced. Some pension annuity companies selling business lovers all to between 20% and 30% of previous business levels.

We suggest that a combination of low interest rates, financial stability rules imposed on pension companies, longer life expectancy and the improved accessibility for flexible drawdown for all in addition to improved death benefits have all added to annuity market woes.

Many consumers are already wise to the fact that in some cases given that annuity rates are as low as between 2.5% for an inflation linked annuity and 5.9% per annum for a level annuity for a 65-year-old, it will take between 20 and 40 years for you even just to get your money back.

In addition, the reason annuity rates also low is that a pension company must guarantee to provide you with an income for the rest of your life. The way they usually do this is to accept your pension fund and then they simply go and invest an equivalent amount of money by buying Gilts (government bonds). The cost of borrowing for the British government is currently at an all-time low i.e. they can borrow cheaply. This means that guilt you are low and indirectly it has driven annuity rates ever lower over the last few years.

We do not see this position improving for some time and given the pressures on life expectancy we are already seeing many of the traditional annuity companies launching new pension and at retirement services.

That said, pension annuities still represent an excellent retirement choice if you want a guaranteed income for life or if you suffer with ill-health or are a smoker as the annuity rate offered to you may be uplifted if your life expectancy is shorter. This is known as an enhanced annuity.