Why are annuity rates going down again?

bigbloke45

Annuity rates are typically based upon 15 year gilts (longs). The reason that they are falling is tied up very closely to how the market sees long gilts. Gilt prices are strongly influenced by interest rates ( as interest rates fall, gilt prices rise and vice versa), the market's view on future interest rates (if the market thinks there will be an interest rate fall, this will be "priced in" i.e gilt prices will rise accordingly.

Other factors include the market's view on future inflation, the relative scarcity/abundance of available gilts (if there aren't enough, prices will rise etc.) The future borrowing requirements as guessed by the market, e.g this current bunch of "numpties" have spent all our money and need to borrow more; this means more gilts sold/auctioned = price fall, yield up etc.

Oh yes, then factor in actuaries' assumptions as to life expectancy, the actual availability of enough gilts to satisfy the market, this government's political spin on defined contribution pensions and then you might JUST have enough data to work out what is going on. But I doubt it!

Have a look at this to see the relationship between gilt yields and annuity rates (remember, as yields fall, gilt prices rise. So, if you think interest rates are going "south" then it may be time to switch to a gilt fund if you are near retirement (or, as so many recommend on this website, consider staying invested)

Thank the good lord it's all so easy!

http://www.annuity-bureau.co.uk/Annuity+Rates/Historic+annuity+rates/

TRUSt_NO_1_2

dunstonh wrote: »

Long term interest rates are looking lower. Its much the same as why mortgage interest rates are going down as well.

You want a wager on that ?

Short term yes...to try to apply the kiss of life to the 'economy,which has just been administered the last rites,courtesy of Alistair Dumpling.

Long term no.
With true inflation running at 10%++++,who would lend money out at 4% ?

Redundancies are soaring.UK wages (median) are falling.
I would suggest annuity rates going down have got more to do with a pension industry facing 'bankruptcy'.

TRUSt_NO_1_2

EdInvestor wrote: »

.The oil price is down quite a lot ....

It was around $70 per barrel this time last year.

The surge to $145 was caused by a hedge fund (now bust) try to short cover.

When the Yanks start moving into Pakistan and with Russia likely to interfere with supplies to Europe it won't be long before oil is back to $145 + some.