The question over whether annuity rates will rise or fall in the future is one which taxes the mind, or should tax the mind of every potential annuitant – in theory. However, given the fact that more people do not shop around for an annuity than do, it is easy to argue that the majority potential annuitants will probably not even consider this dilemma. And who can blame them, as no one knows for certain if rates will rise or fall in the future. Moreover, burdening one self with financial predictions such as this is not something many retirees will feel confident in doing.
If you look historically, the omens are not good for higher rates in the future. Rates have been falling steadily for the last 15 years and they are half the level they were in the early 1990′s. There are a number of broad, underlying factors as to why rates have fallen in this period, namely falls on the stock market, the price of gilts, the aging population and other factors such as Solvency 11 legislation. However, there have been some recent spikes where rates have gained on previous falls, such as right at the start of this year.
Making any kind of short-term prediction over rates for annuities is an inherently difficult task though. If you are not certain about committing to an annuity, you can defer buying one and wait for potentially better economic conditions. But be warned, these ‘better conditions’ may never arise. In fact economic conditions could worsen, such as gilt prices increasing, which impacts negatively on the yield. This in turn drives down rates. Remember, every month you wait, you are missing out on monthly income you would have had, had you gone ahead and bought an annuity, so only defer if it is financially prudent to do so. One option is to keep some of your pension fund back, and invest a partial amount in an annuity, so you have an income but also have capital put aside for investment should the opportunity arise.
