You have to go back to 2008 to match the current 15-year gilt yield, following the recent remarkable run.
Gilt yields are closely correlated with changes in the UK Bank Rate. Expectations are for further rises by the Bank of England this year, potentially pushing 15-gilt rates even higher, before falling back. That means current prices could represent a peak.
Be aware that other economic and factors, such as the state of government finances, can influence gilt yields and also that exact annuity pricing is ultimately determined by annuity providers and may not always reflect these movements.
Is an annuity right for you?
Annuities were once the norm for people trying to secure a retirement income, but their popularity waned with the deterioration of rates.
Also, many retirees have preferred to access their pension money via drawdown or lump sums, which was made more popular after rules changes made in 2015. Doing so means income is not guaranteed and is affected by investment gains and losses, although you do keep ownership of your money and it remains available to pass on after your death.
The decision to use your pension money to buy an annuity or access it another way is not only dependent on the rates being paid on annuities. Your wider financial circumstances and need for guaranteed income is also important.
Thankfully, you’d don’t have to choose one or the other – you can mix your income options. For example, you may want to use annuities to cover your essential costs but be happy to leave the rest invested to access via drawdown. And, as the table above shows, annuities pay more at later ages so delaying the moment you buy could work in your favour.
A professional adviser can help draw up and plan for your retirement income that makes the most of your savings and helps to minimise the tax you pay. Fidelity’s retirement advisers use cash-flow modelling tool to show you the difference that mixing your sources of income can have.
Meanwhile, the government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online at www.moneyhelper.org.uk or over the telephone on 0800 138 3944.
Source:
1 https://library.standardlife.com/StandardLifeAnnuityRateTrackerJuly.pdf
