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Annuities hit five-year high

Created:
14 May 2008
Written by:
Moira O'Neill

Today's retiring investors are benefiting from a raging price war between insurers are they battle it out for the top price spots - forcing annuity rates to a five-year high.

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People buying annuities are the direct beneficiaries of the credit crunch as high yields on corporate bonds have pushed annuity rates 11 per cent higher than this time last year.

Today's annuity yield for a 65-year old male is 7.66 per cent a year compared with the yield in March 2006 of 6.92 per cent, according to analysts at Hargreaves Lansdown.

David Marlow, director at Alexander Forbes Annuity Bureau says: "It's a good time to retire if you're seeking the best annuity income. People approaching retirement shouldn't be fooled into thinking the current excellent rates will last however; with longevity increasing, the long-term trend for annuity rates is likely to turn back down."

Nigel Callaghan, pensions analyst at Hargreaves Lansdown says: "If you have decided to retire and take an annuity this year, do it now and get the first payment from your provider as soon as possible."

Even if you prefer to keep your pension invested and withdraw an income directly, Mr Callaghan says you should still consider buying an annuity with at least some of your fund.

"Even if you are in income drawdown, it may make sense to buy an annuity if you have say £500k in the pension contract," he says. "It would be quite a good call to put £100-200k into an annuity to secure a guaranteed minimum income. If you do that you will have more investment freedom with the remainder because you have a guaranteed bottom line."

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To read IC's investment guides, including information on pensions and Sipps, visit http://www.investorschronicle.co.uk/InvestmentGuides/

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