Annuity Choice is Crucial Due to Combination of Low Interest Rates and Quantitative Easing

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My Pension Expert looks at the recent decision to commence quantative easing by the Bank of England and the effects of those looking to retire.

My Pension Expert
more than 6 million people over 50 expect to work past the retirement age and over half of them believe they have to do so in order to be able to afford life’s necessities.

Annuity rates are at their lowest point, making it a necessity to choose the right annuity. The Bank of England’s decision to recommence quantitative easing is unlikely to see any improvement on the rate. While the Bank of England’s rate is advantageous for those paying off debts, the 0.5% rate does not benefit those about to retire.

The cost of living for pensioners has surged over the last decade and due to the rise in life expectancy, savings have to last longer than ever before. Crucially, the combination of low interest rates and high inflation has been a blow to pensioners. This may worry those about to retire and raise concerns about whether a standard annuity will be enough to enjoy a comfortable retirement.

Significantly, more than 6 million people over 50 expect to work past the retirement age and over half of them believe they have to do so in order to be able to afford life’s necessities. Those who intend to wait longer before retiring, on average, will continue to work 6 years past the retirement age, whereas 20% of those people expect to work a further 10 years.

There are some advantages to delaying retirement, such as having the opportunity to build up a pension or there could be a rise in the value of a person’s pension, however upon retiring, a traditional lifetime annuity may no longer be the best option.

Another way of increasing income is selecting an enhanced annuity. This takes into account whether a person smokes, has medical conditions or is overweight, meaning someone has more chance of a greater income if they have conditions that could potentially reduce their life expectancy. However if someone has no medical conditions, the enhanced annuity will not be accessible to them.

Nowadays a traditional annuity does not suit everyone; therefore there are alternatives on offer, which tend to suit more people. However, the number of people choosing these options instead of a traditional annuity has not kept up with developments within the industry. The type of annuity that is chosen will depend on the person’s needs and their financial requirements.

Furthermore, people who want to profit from future growth while being protected against market unpredictability, may benefit from choosing an investment-linked annuity. Investment-linked annuities offer a competitive level of initial income and they have the potential for income growth in the future and a greater level of retirement income.

My Pension Expert is a company of Diploma Qualified Independent Financial Advisors who specialise in the at retirement market.

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Samantha Green
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