The 15-year gilt yields have a significant effect on annuity rates which we update daily.
Changes in the market
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Since reaching an all time low of 1.68% on 30 January the 15-year gilt yields have increased improving standard rates with a rise of up to 8% for impaired annuity and smoker rates, although these may decrease if yields do not increase further.
Standard annuity rates were increased from Hodge Life and Canada Life at the end of May by up to 5.7% and again at the beginning of July as providers become more competitive.
Changes in the 2015 Budget will allow reited savers to sell their annuities taking a cash lump sum or transfer to flexi-access drawdown.
Impaired annuity rates decreased in March by about 2.6% from Liverpool Victoria, Just Retirement and Partnership have also decreased their impaired annuity rates across the board. Standard annuity rates have not been improved by all leading providers by following higher gilt yields.
Recent decreases are due to economic uncertainty such as the falling oil prices, deflation in the Eurozone and the ECB starting a €1.1 trillion stimulus programme, poor economic data from China and high interest rates from Russia. This has contributed to uncertainty and investors seeking safe havens such as government bonds and gilts.
Legal & General expect the UK annuity market to shrink in size from £12 billion to £2.8 billion following nes pension rules from April 2015. This could see providers developing more flexible annuity products in the future or people considering flexible drawdown or fixed term annuities allowing them to take an income and to access their fund to consider their options again in the future.
The Chancellor George Osborne has announced a radical change for pensions in the Budget allowing people at retirement more freedom to take their benefits in any way they feel is appropriate. This includes being able to take the full fund as a lump sum less tax rather than buying a pension annuity.
The Bank of England may increase interest rates from the current 0.5% level despite "forward guidance" policy to maintain rates until mid 2016 if the economy improves.
Annuities for 2015-2016:
Annuity rates reached an all time low point in January 2013 with the Unisex Rates being applied. In the long term assuming the UK economy improves with interest rates returning to more normal levels, gilt yields would improve and this would mean annuities would increase although the process could take several years. The Bank of England are expecting interest rates to rise from the current level of 0.5% at the end of 2015 and possiblly beginning of 2016.
Many pensioners remain investment in equities at retirement and changes in the FTSE-100 index can make a significant difference to the pension income they will receive, up or down. The FTSE-100 index is currently at 6,551 on 14 August 2015 increasing since the low of 4,944 on 4th October 2011. Purchasing an annuity can often take a month so to protect against volatility in the markets pensioners invested in equities should consider switching
their fund to cash to avoid further decreases in their pension fund value or delay purchasing an annuity until the current crisis has stabilised.
15-year gilt yields:
Gilt yields last month changed from 2.40% to 2.28% or 12 basis points lower. Yields reached an all time low in January 2015 of 1.68% and annuity rates are offering poor value to pensioners. On 14 August 2015 the 15-year gilt yields were at 2.25%.
A pension annuity can be a fantastic way to ensure a pleasant retirement, and by comparing annuity rates it is possible for you to increase your pension income by up to 25%. Being financially prepared for retirement is extremely important for you to live a comfortable and secure life and to ensure such an existence many people choose to buy a pension annuity. It is important to remember that this is an investment that has to last you for the rest of your life, so comparing annuity rates is highly advisable before you make your choice.
It can be difficult for some people to look ahead and consider planning for a time when you are not working, but it is an essential consideration if you want to enjoy as lifestyle that allows you some financial freedom. A pension annuity could allow you just that freedom and put you in a far better position to enjoy a much happier retirement, with less to worry about financially. Nobody likes the idea that money worries will be a problem when they are older so taking action now could be one way to securing a much brighter future all round, so do have a good think about where you want to be.
What do the Best Rates Depend On?
There are a number of different factors that annuity rates depend on. For instance, the annuities will be different as mortality differs for a range of ages. Other factors that annuity rates are dependent on include the following:
• Smoker/non smoker – annuities can vary significantly between smokers and non smokers
• Illness – illness is another thing that can have a noticeable effect on annuity rates
• Care needs – annuity rates can also be affected if an individual has immediate needs such as care homes
• Impaired health
Because annuity rates can differ so much it is essential to compare annuities on the market to find one that will suit your requirements, and you can do that here at Sharing Pensions.
Of course, whilst we do try to secure the best annuity rates that we can they are reliant on a number of external factors which are beyond our or your control. This could include things such as the value of government bonds and gilts, Bank of England base rates and other monetary factors such as quantitative easing. We know that you will be interested in seeing details about annuity rates and how they have performed historically and you can find this information on our website. Our website is very helpful in this respect and lays out all the information you could require in a simple and easy to read manner.