A long way back for annuity rates

This article is part of
Guide to retirement income

“With long-term gilt yields now running at -0.5 per cent we would certainly hope that we are at the bottom of this cycle which means annuity purchase may become more attractive in future years.”

Rates are not the only consideration

However, low rates should not act as a deterrent and rates are not the only consideration, when considering annuities.

Jessica List, pension technical manager at Curtis Banks says: “While annuity rates are very low, for those who will need some level of guaranteed income that’s something to consider planning around, rather than a reason to avoid annuities altogether.

“While it would take a crystal ball to know what the rates will do in the future, those who may need an annuity will need to factor the possibility of low rates into their savings plans.” 

Tait takes a similar view: “I would caution against basing the decision on rates alone. If a guaranteed income stream will make the difference between paying essential bills and not, then clients should definitely be considering annuitising at least part of their fund.

"Further levels of annuitisation can then be built up over time as the client ages and is more likely to qualify for an enhanced rate.”

Leckridge also suggests looking beyond the rates: “The attractiveness of annuities is not so much the rate but more the fact that they are guaranteed to provide an income for the life of the purchaser.”

He adds: “If there is a requirement to provide for a guaranteed income then annuities are the most appropriate solution, irrespective of rate.

"The only time we would recommend otherwise, is if there is a positive outcome once we have run their information through our sustainability calculator and found that using drawdown will provide the required income for life, assuming a stringent stress test.”

Shopping around for the best deal on annuities  

In the meantime, annuity-seeking retirees and their advisers should make the best of the situation, by researching the market for the best deal available, as Alistair McQueen, head of savings and retirement at Aviva suggests: “With the economy in its current state of fragility and little expectation of headline annuity rates accelerating, this reality strengthens the need to shop around when considering annuity options.

“There are several annuity providers to choose from, and a greater number of annuity types from which to pick. By the adviser and client shopping around for their best deal, they will make their investment in an annuity drive its best possible return.