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Annuity News

Annuity Update February 21st, 2018

Annuities are coming out of the doldrums as rates rise are rising on the back of increased bond yields.

Since the beginning of the year the yield on the benchmark gilt has risen from 1.67% to 1.91% (3rd week in February). This may not seem a big increase but is enough for annuity providers to increase their rates.

At the beginning of the year, our benchmark annuity (£100,000, joint life 2/3rds level annuity for a couple aged 65 and 60) was £ 4,447 gross and this has increased by £ 145 per annum to £ 4,592, an increase of 3.3%.

Annuities still have a long way to go before they get back to levels seen in 2010 when the benchmark annuity was paying over £ 6,000 per annum and the benchmark yield was about 4%. If the benchmark gilt was to increase by 50 basis points to about 2.5% in 2018 we could expect annuity rates to increase by another 5% which would take the benchmark annuity to over £ 4,800.

Yields are increasing as a result of markets reacting to the prospects that the Bank of England will increase intertest rates faster than previously thought on the back of renewed concerns about increased inflation.

In practical terms, anyone thinking of delaying an annuity in anticipation of increased rates should be mindful that any gains in annuity rates could be set against the income lost by waiting. It also important to review investments in the run up to retirement because a fall in equity markets could mean a smaller pension pot to buy a higher annuity.

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