Why Now Is the Perfect Time to Get a Retirement Annuity

Annuity rates have risen again in recent months, allowing those looking to buy a lifelong pension to secure a greater annual income.

However, experts warn that they could soon start falling again.

For a long time, annuities, which provide guaranteed income for life, were considered of little value. Three years ago, a healthy 65-year-old with a pension pot of £100,000 could only get a benefit of £4,700 a year.

But over the past two years, annuity rates have risen in line with interest rate hikes by the Bank of England.

This means that the same 65-year-old could instead have received an income of around £7,000 a year in November 2023, an increase of almost 50 per cent.

In January the figure fell below £7,000 on expectations that the Bank would cut rates as early as March or May, but recent delays mean pensioners can now get back above £7,000.

This is because a key factor in the pricing of annuities is the value of UK government bonds, essentially debentures issued by the government, which are linked to the base rate. It now stands at 5.25 percent and has been held at this level for six consecutive meetings.

Experts have warned that this possibility will not last long, as an increase in the base rate this week will likely be one of the last decisions of this kind, with rates falling later this summer or in the fall.

Economists consulted by i this week it said an August cut was the most likely option, although it could happen as early as June.

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“If the Bank of England’s base rate forecasts materialize, we are likely to see annuity rates fall at the same time. If someone is considering purchasing an annuity in the near future, it may be wise to request an annuity quote sooner or later,” says Mark Ormston, director of propositions and corporate partnerships at Retirement Line.

Helen Morrissey of Hargreaves Lansdown added: “Annuity rates may have fallen back from the dizzying heights we saw in the wake of the mini-Budget, but they still offer the best value we’ve seen in years and rates remain high .

“With an expected rate cut in the coming months, we are likely to see these incomes fall, so we could see more people choosing to take the plunge before this happens. It is also worth saying that while annuity income could fall in the coming months, we are still some way from the lows we saw immediately after Brexit.”

Nick Flynn, director of retirement income at financial services firm Canada Life, said the annuity market is “incredibly busy” right now.

The company reported a record turnover of £1.2 billion in individual annuities last year.

“While it may be a fool’s paradise to predict future annuity income, I know today that clients looking for income security, either at the point of retirement or to reduce the risk of their withdrawal strategy, can get a lot now. more value from their annuity choice,” Mr. Flynn added.

Whether an annuity is the right product for you and exactly how valuable it will be depends on your circumstances, including your health.

They’re also not the only way to access your pension if that’s your main reason for choosing them.

Demand for them waned after the government introduced a range of ‘pension freedoms’ in 2015, meaning people no longer had to take one out and could instead use withdrawal, where you take money out of your pension savings while it remains invested.

“An annuity is the only retail retirement product that guarantees an income level for at least the buyer’s life. However, purchasing an annuity is an irreversible decision and should be carefully considered with this in mind,” said Mr Ormston.

“Annuities can be tailored to the needs and circumstances of individuals and it is always important to remember that people can have a ‘mix’ of retirement products. No one needs to put all their retirement savings into an annuity or just a benefit; they can have both,” he added.

Experts have warned that you should seek financial advice if you are unsure of your decision.

“Always seek advice from an annuity specialist or regulated financial adviser before making any decision. These professionals will help you navigate the myriad of options available, whether it’s 100 percent value protection, longer guaranteed periods, or simply taking your health and lifestyle into account, which can result in a better income,” said Mr. Flynn.