For anyone who does not have a generous final salary company pension on which to retire, the decision about how best to convert a “pension pot” into an annual income is a key element of any investment management strategy.
That’s because once you take out an annuity – i.e. hand your savings over to an insurer who pays you a fixed annual income for the rest of your life in exchange – you are usually locked into a set rate and prevented from switching to a more advantageous deal.
As any financial adviser will tell you, annuity rates are at their lowest for many years Statistics show that at the start of 2013 the average annuity income had fallen in 15 out of the previous 18 years.
In 2012 alone, the average income for a 65-year-old male annuity purchaser plummeted by 11.5 per cent, according to Moneyfacts, the financial information service.
Another recent survey showed that this year’s cohort of retirees will be on average £3,400 a year worse off than those who bought annuities in 2008.
Much of the blame for falling annuity rates can be attached to the post-2008 global economic crisis that has resulted in rock bottom interest rates and yields on bonds. The fact that people are now living much longer in retirement is also a factor.
Optimists say that those who purchase annuities can expect rates to improve by as much as a quarter over the next two years as economic conditions improve. But can you afford to wait? After all, rates might just as easily deteriorate further.
And even if underlying interest rates and bond yields do improve, will annuity buyers be any better off?
Like retailers who are quick to raise prices but slow to cut them, some annuity providers may be reluctant to pass on increases in yields to purchasers, not least because they are under pressure from regulators to put more cash aside to bolster their reserves while still faced with improving longevity rates.
As a leading West Midland financial adviser, The Whitehall Partnership can offer you truly independent help when it comes to investment management and getting the most advantageous purchased life annuity.
For a free, no-obligation, no strings attached initial consultation call us on 0845 43 49 250 today.