Annuity rates fall in response to Brexit

27 June 2016

Annuity providers have begun to reduce rates in response to the referendum result and the subsequent drop in gilt yields.

It emerged this morning that both Just Retirement and Retirement Advantage have implemented rate cuts that will see annuity purchases receive a lower level of income.

Moneywise warned on Friday that annuity rates could fall following the Brexit result.


How much are rates falling by?

Andrew Tully, pensions technical director at Retirement Advantage says: “We’ve reduced our annuity rates by 3% as markets adjust to the UK leaving the EU.”

This will see a healthy 65-year-old with £100,000 lose around £150 a year. On Friday they would have got an income of £5,087 a year, but today they would get just £4,937, according to figures from the company.

In Just Retirement’s case, the reduction is around the 2% mark.

Should I buy an annuity now?

Tom McPhail, head of retirement policy at Hargreaves Lansdown says he expects more providers to follow.

“Gilt yields and annuity rates have been dropping steadily over the past year. The events of the past couple of days have given new momentum to that trend. For any investor planning to buy an annuity in the immediate future, it may make sense to do so sooner rather than later”

He adds: “As always, make sure you shop around for the most competitive terms for your personal circumstance before committing to a deal. If you want to delay purchasing an annuity, but need to draw on your pension savings, then look at drawing an income from your funds using a drawdown arrangement instead.”


What if I already have an annuity or recently obtained a quote?

The news will not affect retirees with annuities in payment as this income is guaranteed. You should also not be affected if you have recently received an annuity quote as most providers guarantee quotes for between two and four weeks.

What has Brexit got to do with annuities?

In order to pay annuities insurance companies invest in gilts – loans to the government, which pay a fixed rate of interest. 

These are considered to be ‘safe haven’ investments and as such are more popular during periods of volatility in the stock markets.

Following Friday’s referendum result and the subsequent turbulence on the markets, demand for gilts increased pushing their price up and therefore the yield investors receive, down.

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