If you are thinking of buying an annuity then the news that rates have started to rise slowly at the start of this year will come as welcome news, especially as the last six months of 2009 saw rates fall again by 1.5%. As expected many pension and annuity experts immediately started to encourage would-be annuitants to take the plunge and buy an annuity while rates had increased.
There are two major reasons why rates have been falling over the past 15 years. The first is that we are all living longer, and so annuity providers are having to pay out for longer, thus putting downward pressure on rates. Secondly yields from gilts have been falling steadily – by over 50% in the past two decades. Many pension advisers wishing to promote the sale of an annuity can lean on this data to form the argument that “things can only get worse” and that retirees should lock in rates asap. However, if gilt yields rise again, then rates could increase even further, so it may be worth waiting a little longer.
