Annuities rates have fallen over the last few years, and even in the last few months. This has been due to a number of factors. The EU gender ruling: that it is no longer permissible to have separate annuities rates for men and women, have meant a downturn in the rates. The Solvency 2 ruling means that annuities providers are going to have to be more careful about how they risk their portfolios, which has also meant a decrease in annuities rates. Add to this the fluctuations in the Eurozone, and you will understand why annuities rates have continued to fall. Each of these factors has meant an increase in gilts, and therefore a decrease in annuities rates.
When you purchase your annuity, the annuity provider uses your annuity to purchase gilts, and it is actually the returns from the purchase of the gilts that pays your monthly income from your annuity. This means that even small fluctuations in the market will affect annuities rates. Currently if a single male, at 65 years of age, purchased an annuity for £50,000, he would likely be getting just under £3,500 a year. Clearly this is low, and annuities rates are not where they have been in the past.
Annuities rates are set to fall further, especially if investors are concerned with the containment of the Unisex annuity rates. Many pensioners have therefore held off purchasing annuities, waiting for the Eurozone crisis to resolve itself, or at the least stabilise. With the Unisex annuity rates coming into effect in December 2012, this will probably mean another dip in rates.
However, in the bigger picture, there is good news. Assuming that interest rates continue to normalise, the yield on gilts will also improve, which in turn means that annuities rates will increase. This process will take a few years, but it should happen as has been predicted.
Unfortunately, with most things in the financial market, there is nothing that can be taken for granted. This is certainly true of annuities rates. Annuities are one of the lower-risk investments that you can make at retirement, and it can certainly be a good use of your hard earned pension. But in order for this to be the case, you have to do your homework and find the best annuities rates that you can. If you can afford to wait until annuities rates increase, then that is good, but not everyone has that luxury.