Annuity rates on the up, is now a time to buy one?

RogerPensionGuy

Annuity rates are on the up and must say I had ruled them out since pension freedoms were introduced in 2015 IIRC. 

I'm seeing more and more press just saying rates on the up and maybe people should reconsider them to be used.

If I'm correct annuities have evolved over the years and nowadays they can have more flexibilities and look a bit nicer to buy in my head.

Thoughts in my head now is when these products will be at their highest rates obviously trying to pick a peak in returns.

Am I correct to think that say the bank of England had interest rates at 6% this December and that slowly drops to say 5% by next December and sits around 5% for a good few years that probably the best time to buy an annuity in January 2024.

Any views and comments most welcome please?

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https://www.hl.co.uk/news/articles/annuity-incomes-hit-six-month-high-is-now-the-time-to-buy-an-annuity

dunstonh

If I'm correct annuities have evolved over the years and nowadays they can have more flexibilities and look a bit nicer to buy in my head.

The pension freedom rules also change the law on annuities as well.   Mainly in the area of death benefits.

Am I correct to think that say the bank of England had interest rates at 6% this December and that slowly drops to say 5% by next December and sits around 5% for a good few years that probably the best time to buy an annuity in January 2024.

Annuities are more closely linked to gilt yields.   The peak on gilt yields is likely to be before interest rates hit their peak.   It is effectively when markets have priced in what they think is going to happen which will be before it actually happens.  By the time it actually happens, yields will likely be on the way down again.    However, several times over the last 6 months, markets thought we were getting near peak only to then change their mind.

Fast_Muchly

Hi 
     Can i hi jack the thread a little bit as well , im interested inthis as i have always been income drawdown all the way .But seeing the rates go up is starting to get my attention .

But Dunstonh you have just said changed the law on annuities death benefits .......Can i ask when you die has it changed to the cash pot can be left to a sibling as thats the only thing and i suppose what puts most people off . 

RogerPensionGuy

I found the links below helpful. 

https://www.phoenixlife.co.uk/customer-centre/help-centre/product-guides/annuities/annuity-features

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https://www.annuity.org/annuities/types/

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https://www.ageuk.org.uk/information-advice/money-legal/pensions/annuities/

RogerPensionGuy

dunstonh said:

If I'm correct annuities have evolved over the years and nowadays they can have more flexibilities and look a bit nicer to buy in my head.

The pension freedom rules also change the law on annuities as well.   Mainly in the area of death benefits.

Am I correct to think that say the bank of England had interest rates at 6% this December and that slowly drops to say 5% by next December and sits around 5% for a good few years that probably the best time to buy an annuity in January 2024.

Annuities are more closely linked to gilt yields.   The peak on gilt yields is likely to be before interest rates hit their peak.   It is effectively when markets have priced in what they think is going to happen which will be before it actually happens.  By the time it actually happens, yields will likely be on the way down again.    However, several times over the last 6 months, markets thought we were getting near peak only to then change their mind.

dunstonh said:

If I'm correct annuities have evolved over the years and nowadays they can have more flexibilities and look a bit nicer to buy in my head.

The pension freedom rules also change the law on annuities as well.   Mainly in the area of death benefits.

Am I correct to think that say the bank of England had interest rates at 6% this December and that slowly drops to say 5% by next December and sits around 5% for a good few years that probably the best time to buy an annuity in January 2024.

Annuities are more closely linked to gilt yields.   The peak on gilt yields is likely to be before interest rates hit their peak.   It is effectively when markets have priced in what they think is going to happen which will be before it actually happens.  By the time it actually happens, yields will likely be on the way down again.    However, several times over the last 6 months, markets thought we were getting near peak only to then change their mind.

Tks for that post, looks like I just need to decide if I want to buy an annuity and which type, maybe buying two different ones maybe an option. 

As mentioned in quoted post above, I need to be lucky buying any annuities before peak interest rares.

I'm obviously no expert as easily seen with my posts, but my guessing is bank rates above 7% would just be too problematic for the UK and we won't see them above that(famous last words) however 6.25/6.5% for more that six months is easily possible and just a slow slow ramp down to 5% by the tail-end of 2025.

If my casually informed guessing above is anywhere close to the pathway, taking the plunge of buying annuities when rates at 6% maybe the spot of time to jump in.

dunstonh

Fast_Muchly said:

Hi 
     Can i hi jack the thread a little bit as well , im interested inthis as i have always been income drawdown all the way .But seeing the rates go up is starting to get my attention .

But Dunstonh you have just said changed the law on annuities death benefits .......Can i ask when you die has it changed to the cash pot can be left to a sibling as thats the only thing and i suppose what puts most people off . 

You can now select upto 30 years continuing income as a guarantee option but an alternative is value protect.  This is where any unpaid fund value is paid to a beneficiary.    e.g.. a pot of £100k is used to buy the annuity.  £35k is paid out in income during the annuitant's lifetime.    Value protect will pay the difference between the purchase price and amount paid, ie. 65k in this case to a beneficiary.

michaels

Perhaps rather like investing a lump sum it might make sense to 'drip feed' annuity purchases over a period of months or years although I have not idea whether fees etc might make such an approach not viable?

OldScientist

RogerPensionGuy said:

dunstonh said:

If I'm correct annuities have evolved over the years and nowadays they can have more flexibilities and look a bit nicer to buy in my head.

The pension freedom rules also change the law on annuities as well.   Mainly in the area of death benefits.

Am I correct to think that say the bank of England had interest rates at 6% this December and that slowly drops to say 5% by next December and sits around 5% for a good few years that probably the best time to buy an annuity in January 2024.

Annuities are more closely linked to gilt yields.   The peak on gilt yields is likely to be before interest rates hit their peak.   It is effectively when markets have priced in what they think is going to happen which will be before it actually happens.  By the time it actually happens, yields will likely be on the way down again.    However, several times over the last 6 months, markets thought we were getting near peak only to then change their mind.

dunstonh said:

If I'm correct annuities have evolved over the years and nowadays they can have more flexibilities and look a bit nicer to buy in my head.

The pension freedom rules also change the law on annuities as well.   Mainly in the area of death benefits.

Am I correct to think that say the bank of England had interest rates at 6% this December and that slowly drops to say 5% by next December and sits around 5% for a good few years that probably the best time to buy an annuity in January 2024.

Annuities are more closely linked to gilt yields.   The peak on gilt yields is likely to be before interest rates hit their peak.   It is effectively when markets have priced in what they think is going to happen which will be before it actually happens.  By the time it actually happens, yields will likely be on the way down again.    However, several times over the last 6 months, markets thought we were getting near peak only to then change their mind.

Tks for that post, looks like I just need to decide if I want to buy an annuity and which type, maybe buying two different ones maybe an option. 

As mentioned in quoted post above, I need to be lucky buying any annuities before peak interest rares.

I'm obviously no expert as easily seen with my posts, but my guessing is bank rates above 7% would just be too problematic for the UK and we won't see them above that(famous last words) however 6.25/6.5% for more that six months is easily possible and just a slow slow ramp down to 5% by the tail-end of 2025.

If my casually informed guessing above is anywhere close to the pathway, taking the plunge of buying annuities when rates at 6% maybe the spot of time to jump in.

Two points:

Timing for annuity purchase - I think you've said on another thread that the money earmarked for annuity purchase is now in a MMF - very wise in case of a stock market crash.

Secondly, I was curious to look at how the bank rate and gilt yields have varied over the last couple of years (data from the Bank of England website and the HL annuity rate website). The 15 year nominal gilt is a reasonable pointer to nominal annuity rates (of course, the payout rate is higher than the gilt rate). 

                                 15 year     Single life, @65

               Base rate Nominal     RPI Annuity

Dec 2021   0.25          1.15            2.8

Jun 2022   1.25          2.63            4.2

Dec 2022   3.50         3.99            4.3

Jun 2023   5.00         4.40             4.6

It is clear that the base rate has risen by a lot more (4.75 percentage points) in the last 18 months than the gilt yield (3.25 percentage points). Although not shown, in the same period, the yield on the 15 year inflation linked gilt has increased by slightly more (3.5 percentage points from -2.7% to 0.9%). In the meantime, annuity payout rates have risen by 1.8 percentage points (i.e., by about half the amount that the gilt yields have risen).

Of course, in the event that international money starts buying up UK debt in huge quantities, then the gilt prices will rise and yields drop (and annuity payouts drop too). I don't posit this as what I expect to happen (I have no idea), but it is a (unlikely?) possibility that you should bear in mind. Related to this is - how much difference will waiting to get an extra 20-30 bps on your annuity payout rate make to the quality of your retirement compared to (say) losing 20-30 bps?

Mick70

are there any websites where you can get a quote for an annuity , one that would rise each year with inflation , rather than remain the same for its lifetime.    the way you can get a car insurance quote on moneysupermarket etc 

Thumbs_Up

Mick70 said:

are there any websites where you can get a quote for an annuity , one that would rise each year with inflation , rather than remain the same for its lifetime.    the way you can get a car insurance quote on moneysupermarket etc 

Try this...

https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/compare-annuities

OldMusicGuy

Thumbs_Up said:

Try this...

https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/compare-annuities

This site is really good. I used it to model different scenarios before I bought an annuity at the end of last year. It will help you decide what type of annuity is best for what you are trying to achieve. But you should consider getting quotes from some form of intermediary (like an IFA) once you know the type of annuity you want, because I got a quote from one provider that was significantly higher than the quotes I got through the MoneyHelper site (all the others were similar to the MoneyHelper site).