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Have we reached peak annuity rates?
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Portfolio withdrawals either risk going to zero before the end of the planning period if a constant inflation adjusted approach (i.e., 'safe' withdrawal rate) is adopted (e.g., over a 30 year retirement with a UK 60/40 equities/gilts portfolio the safemax was about 3.0, while a withdrawal of 3.5% failed in 10% of historical retirements and 4.4% in about 25% of retirements), while dynamic withdrawals by their very nature are variable (e.g., for a constant percentage of portfolio withdrawal strategy, the mean withdrawal was, in real terms, about 2.4% in the worst case, 2.8% in 10% of retirements, and 3.5% in 25% of retirements when withdrawing 5% of the portfolio each year) but will last a lifetime.
Inflation adjusted annuities will provide a lifetime of inflation adjusted income (with risks arising from insurance company failure and debt default). At 67 (roughly with a 30 year horizon, so comparable to the 'safemax' approach given above), the rates for a single life at 5.6% or a joint life with 100% beneficiary of about 4.7% compare well to the level of portfolio income in poorer historical retirements.
An approach to buying level annuities to partially protect against high inflation is to make periodic purchases or to purchase them late. Unfortunately, inflation tends to arrive in bursts rather than being a smooth 4.5% (average UK inflation since leaving the gold standard in the early 1930s) introducing 'sequence of inflation' risk into level annuity purchase (i.e., high inflation early on after annuity purchase is worse than high inflation late in retirement) in addition to other risks.
For those worrying about legacy, I note that including a longish guarantee period (e.g., 20 years) makes a relatively small difference to the payout rate for a joint annuity (but a much larger one for a single life).
(addition) As for the question in the topic: I don't know - but annuity payout rates broadly follow trends in gilt yields (nominal for level and ILG for RPI) so if they continue to go up then annuity rates will do likewise and vice versa.
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I wonder what the decision is when the cost of living - for want of better words - seems to bear little relation to inflation rates? Certainly I seem to be paying far more for goods and services than 3.5% or whatever it is now. Does the index-linked philosophy still hold?
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The so-called "moron premium" for gilts is unlikely to be going away any time soon, unfortunately, so upwards pressure on yields will remain and likely increase for the foreseeable, albeit not in a straight line:
Paywalled: https://www.ft.com/content/ba19293b-12a4-454c-b9dc-aeadf208ad6a
Non-paywalled: https://archive.ph/YkPDW
The "geopolitical premium" is more difficult to predict; while it's currently "obvious" to forecast an increase in this premium given events, this could change rapidly; and as with markets, it's often when things look obviously bad to everyone that peak crisis (peak risk premium) has already been reached.Overall, I'd be surprised if we don't see higher yields (& annuity rates) in the next few years, but if today's numbers work for you then I'd consider locking in some of that now, while avoiding going all-in so you get further bites at te cherry. Regret minimisation, as with buying assets in a falling market.
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Over the longer-term, probably yes. It is certainly the case that the income from an RPI annuity will track inflation more closely (if not perfectly) than the income from a level annuity.
The headline ('All items') inflation rates are based on a basket of goods (which evolves with time - e.g., houmous has been added for 2026 while individual sheets of wrapping paper have been removed - a read through the changes listed at is an interesting one). Since it is quite possible for the inflation of different goods to be different in the short term (e.g., the current spike in oil and petrol prices eventually drives up the price of other goods and service) then your personal cpi will depend on your personal basket of goods. In the longer-term after a price shock in one area (e.g., oil), the price inflation of different goods and services should eventually converge a bit.
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I think it is human nature to perceive that prices are rising faster than they are actually are, especially as very few will be making actual physical notes of prices paid over the last few years. Also we still mentally see & feel the after effects of the double figure inflation experienced 3 years ago. One issue is that some things fall in price, which we do not tend to register , and some things are very difficult for an individual to compare year to year, such as air fares, or one off purchases..
For example until very recently the cost of petrol had dropped to a nearly 4 year low . Similarly duel fuel prices are way below their peak of 3 years ago. Clothing, shoes, household goods and furniture have not increased at all in the last 12 months.
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Interesting. Must admit I don't spend much at all on clothing, household goods, shoes and furniture so I don't appreciate any lack of inflation in those areas. By far the bulk of my spend goes on food, council tax, electric, heating oil, fuel, and insurance. Fair to say that the net increase is far more than the BOE inflation rate.
Difficult to understand just what other folk spend their money on of course, but I don't think I am wildly different to most folk.
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I'm not sure perception is the right term. A lot of it comes down to someone's situation, plus their needs, desires and timing in life.
Groceries have shot through the roof. Pushing 50% over the past 5 years. There are clearly many choices people can make in this area but if you haven't adapted then this will be hitting the pocket. The unluckiest are those with chocolate habits. Even items like white goods (traditionally pretty stable) have increased above the norms.
As for fuel, anyone filling up a guzzler once a week will be feeling the extra £100 a month compared to the start of the year.
For those with mortgages and not on a fix, not too long ago they had 14 consecutive increases after 2021. Either that or their fix will have increased dramatically. Renters fighting their own battles.
Good news on clothing, as you can buy some extra jumpers after not being able to put your thermostat past 16 degrees.
Meanwhile, the majority of workers won't be getting close to the 'average' pay rise.
Whilst there are many who aren't 'struggling' in the true sense (probably not on here anyway!). Things are a lot more expensive in general, compared to the overall inflation figure.
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I'm interested in the 'demand destruction' aspect of inflation.
Most of us oldies will have memories of people saying - once fags go over £1 a packet I'm stopping smoking. Many of them didn't, but some would have.
For myself I'm certainly sensitive to price increases of some products and change what I buy / eat. We were trying to reduce meat consumption anyway, for health reasons, but have dramatically reduced the amount of beef we eat, and have more or less eliminated lamb from our diet entirely, because of the price. Not because we can't afford it, but because we think it no longer offers value.
Those changes in consumption can often be irreversible. People in the UK ate a great deal of rabbit before myxomatosis, stopped at the sight of so many diseased rabbits, and now very few people do eat it. Once tastes had moved on it never really came back. North sea herring was banned for a period of time to let the stocks recover. The fishermen were very excited about the fishery opening, thinking there was a pent-up demand for herring, but again tastes had moved on and domestic consumption never recovered.
I'm not against spending money on food on occasions. I'll go to the fishmonger and spend quite a bit on something nice. I'll also go to the butcher and buy steaks, that are quite a bit better than supermarket beef, but these are occasional treats, rather than weekly staples.
So I suppose what I'm saying is you can tailor your own basket of goods to fit a budget, by cutting out the things that have increased excessively, and reduce your own rate of inflation.
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Groceries have shot through the roof. Pushing 50% over the past 5 years
However in the 12 months to end of Feb 2026 it was more like 4/4.5% ( according to Which, not the Govt)
Supermarket food price inflation tracker from Which? - Which?
As for fuel, anyone filling up a guzzler once a week will be feeling the extra £100 a month compared to the start of the year
An issue that will affect future inflation figures, but not fed through yet.
Things are a lot more expensive in general, compared to the overall inflation figure.
Of course it is possible that the way the official figures are calculated does not give a true figure. However unless you are assiduously noting every price you pay for years, then you ( like everybody else) are inevitably relying at least partly on perception rather than hard facts.
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This is very true, but much of what I spend is largely out of my control. Council tax, electric, fuel, heating oil, insurance etc. Whilst I can reduce food bills and shop around to an extent, for me anyways, I don't think it can offset the net effect of price rises exceeding inflation quite markedly.
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