There’s finally some good news for retirees looking to use some, or all, of their pension to buy a guaranteed income.
In the last four weeks annuity rates have increased seven times, pushing up the income retirees are able to get by 3.4%.
This means that a 65-year-old smoker with a pension worth £100,000 will get £168 more income a year than they would have done a month ago.
Annuities rates have been falling for many years, but they took a further hit when the UK voted to leave the European Union.
Annuity providers rely on gilts - loans to governments that pay a fixed rate of interest - to fund their income, however in the wake of the Brexit vote, the price of this ‘safe haven’ investment soared, causing yields to fall.
But although annuities appear to be staging something of a mini-recovery, experts are advising retirees not to hold off making a purchase in the hope of further rises.
Nathan Long, senior pensions analyst at Hargreaves Lansdown says: ‘Those nearing retirement and in need of secure income are starting to glimpse the light at the end of the tunnel. Annuity rates have bounced off their mid-September lows. They could go higher, but it’s uncertain if or when this may happen. Delaying decisions provides no certainty of more retirement income and many people do not have this luxury as they finish work and need a replacement salary.”
He adds: “The direction of annuity rates is uncertain, but two things are clear. You will get more income buying an annuity today than you did four weeks ago and shopping around for the best income remains critical especially as now three in four people can get higher rates by disclosing any health conditions or lifestyle traits.”