Over the past twenty years, annuity rates have been falling. The primary reason for this is increased longevity.
(PRWEB UK) 20 July 2012
Those retiring in 2012 are experiencing record lows in annuity rates and they look set to plumment further due to Monday's announcement of GAD falling further. Decisions as to whether or not to retire yet are being put under increasing pressure due to the state of pensions once cashed for an annuity. Annuity rates have dropped in the last few months and have now hit an all-time low meaning arrangements for those retiring are becoming a struggle.
Over the past twenty years, annuity rates have been falling. Scott Mullen of My Pension Expert says, "The primary reason for this is increased longevity. For example, a sixty-five year old man who retired in 1990, with £100,000 in his pension fund, may have received an annuity of over £15,000 for the remainder of his life. Today, the same aged male could receive less than £6,000 per year. In the last four years alone, annuity rates have dropped around twenty five per cent. Since the beginning of 2012, this rate has accelerated, due to the Eurozone crisis and problems with our own economy. The latest announcement of GAD falling means rates will decrease even further."
The government's ongoing quantative easing programme is a problem for annuity rates because the primary underlying investment for annuities is gilts. The money in the programme is used to buy gilts, which forces price yields to decrease. Yields have been used to calculate annuity rates which mean insurance companies have had to cut their rates.
New EU requirements mean that insurance companies are compelled to hold more reserves. In theory, they should be able to withstand future financial downturns and the new rules which mean male and female annuity rates become equal. This equality will happen on the 21st December 2012. Some have said that his could mean there is a fresh 10% downturn for male annuity rates.
For those thinking of retiring between 2012 and 2013, annuity rates falling even further may push them to purchase their annuity sooner.
My Pension Expert is a company of Diploma Qualified Independent Financial Advisors who specialise in the at retirement market.