UK Pensions Bounce Back As Annuities Set for Surge

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Leading UK savings comparison website, compareandsave.com, comments on the recent article, published by the Daily Express, regarding a 25 percent Pension Rate Increment.

just because the market is moving in generally positive direction that doesn't necessarily mean people will get a great deal

According to news published today’s Daily Express, pension pay outs are set to increase by 25 per cent in the near future which means that future pensioners can look forward to better rates that determine annuity earnings. The rates in the financial markets that drive annuity returns have risen strongly and there are hopes of further increases to come.

An annuity is a type of insurance policy that provides a regular income in retirement in exchange for a lump sum. Retirees who have built up a pension pot are allowed to take up to a quarter as a tax-free lump sum, but the rest must be converted into an annuity that provides a regular income or put into an alternative income “drawdown” policy.

Such an improvement could mean that even a 10 per cent rise means someone buying an annuity with a pension pot of around £100,000 could see their income grow from around £5,600 to £6,100.

The trick will be to hold out as long as possible before buying an annuity, said pensions expert Dr Ros Altmann. She explained:

“The rise in rates is absolutely inevitable and it would be sensible to consider waiting if you possibly can.”

Tim Gosden, head of annuities at Legal & General, said that as pension firms made more on their investments, annuities should rise:

“If the yield earned by insurers increased by 0.5 of a percentage point, you may see annuity rates increase by about 5 per cent” Annuity rates tend to move in line with the interest paid by Government on bonds it sells to investors. This interest is called the gilt yield.

A compareandsave.com spokesperson commented:

“All in all this this great news for people in the UK about to retire.

Annuities have weakened during the financial crisis so it's good to hear that they are bouncing back - This should breath even more life into the UK economy.

Of course just because the market is moving in generally positive direction that doesn't necessarily mean people will get a great deal. It still pays to shop around and compare UK annuity providers to ensure you get maximum bang for your buck - or pound! ”

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