Highest Annuity Rates in 5 Years?
Hi everyone,
thought I’d try and bring you a little cheer and as spring begins to blossom into early summer, as with everything - a little sunshine goes a long way. If you’re enjoying your retirement already and planning a round of golf or sneaking off to cast a fly on your favourite loch or chalk stream you already know what it means to be favoured with a good retirement income.
If you’re not quite at that point yet, today’s piece is a little update on what you’ll buy with your pension fund when it matures - mostly that means an annuity.
One upside of the credit crunch is that annuity rates are now at a five year high. Insurers are involved in a rate war with 17 rate rises in the last month alone, with 88% of them propelling upwards. According to Nigel Callaghan from Hargreaves Lansdown the pensions analysts, the yield for a 65 year old male is now 7.66 per cent, 11 per cent higher than the yield 2 years ago which was 6.92 per cent. Product providers fighting for the top spot include Prudential, Legal & General and Scottish Equitable.
The reason for annuity rates going up is that inflationary concerns have sent returns on corporate bonds soaring.
The yield on these bonds is one of the main factors which actuaries use to decide what rate they will pay your pension to you at. Since the credit crunch arrived last summer, the yields on corporate bonds have increased significantly as their value has fallen.
Presently the best deal in the market for a 65 year old is £7,676 p.a. for a man and £7074 p.a. for a woman based on a fund of £100,000.
Whilst this may represent a rise of 8% on a year ago you may still think it shows poor value compared to rates in the past. You may have a valid grievance, however…
The reality though is that rates have been falling for quite a few years now and any brief respite for people who have built up hard earned pension pots is a welcome one.
So as the old adage goes - every cloud has a silver lining. Now where did I put my fly rod and waders? I think I might just get out and cast a fly myself this weekend. The air here is just magical.
Until the next time…
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