Title: Annuity Rates – At their highest for 4 years

Author: Billy Burrows

Added on: 02/06/2008

The good news is the trend in falling annuity rates may be about to be reversed meaning investors will get more income from their annuities. However the bad news is that the outlook for global stock markets is uncertain, so the same investors may have less in their pension fund with which to buy their annuity than they had expected.

Nevertheless with the recent increases in annuity rates combined with a rally in equity prices, it now appears to be a good time to consider buying an annuity.

At present a £ 100,000 annuity for a man aged 65 and a female aged 60 (joint life, 2/3rds widow’s pension and level payments) pays a gross income of £6,668 per annum. This is the highest annuities have been since August 2004 when the same annuity was paying £ 6,500. In the intervening period this annuity fell as low as £ 5,921 in February 2006.

The increase in annuity rates means that those retiring today will get nearly £ 700 per annum more than those who retired in 2006 and even in the short time since Christmas annuity income has risen by nearly £ 300 per annum for every £100,000 invested.

This is obviously very good news for those approaching retirement but it is important to remember that annuities do not rise or fall in a vacuum, and is important to consider the impact of rises or falls in the value of pension funds.

Put simply, if annuity rates improve but the value of the pension fund that will buy the annuity falls by a higher percentage, the end result is a lower income not higher.

The reverse is true. If the value of the pension fund rises by more than annuity rates fall the result is higher income.