Following a year that was more than disappointing, the rates on annuities that retirees rely on have finally begun to rise again. Since money market conditions are improving, six major providers have reacted by raising their rates. This means that someone with £100,000 invested in one of these products with an annual income of £5,638 will now receive £5,765, an increase of £127.
The role played by gilts
These are bonds the government issues, and major providers purchase them in order to fund their subscriber’s annuities. Accordingly, if their yields increase, their payouts to pensioners increase as well. Laith Khalaf, an expert in the field, further explains that this happens when fears of inflation are widespread, and that the rates decline once more when those fears become less evident.
The trend will not last
Authorities in the industry are warning the public that it is unrealistic to rely on the belief that the current rally in rates will be sustained. They note that providers seldom hesitate to reduce them when yields are low, and that they are also cautious in raising them when conditions improve. With this in mind, they point out that consumers should not put off buying annuities now with the hope of some future gain. They also note that annuity rates have spiralled downward in the recent past because life expectancy for both men and women has increased significantly.
You still need an annuity
While many people between the age of 55 and 64 cannot explain what annuity is, they should realize that purchasing one could increase their income by as much as 40%, and those with certain health conditions can qualify for an “enhanced annuity as well. The secret is to do a bit of research and find an annuity with the best terms to ensure that you will have a steady income in retirement.