Some economists in the UK are predicting that interest rates could fall as low as 1% as the Bank of England seeks to fight off a prolonged recession.
The Bank cut interest rates by a surprise 1.5% on Thursday to just 3%, their lowest level in more than 50 years. A leading consultancy is predicting rates will fall to 1% next year, although the average forecast is for a trough of 2.5%, according to a poll of economic analysts by the data firm Reuters.
How might this effect those approaching retirement, aside from the obvious cuts in the interest rates paid on savings and deposit accounts? Should they act now and buy their pension annuity?
Many advisers are recommending that retirees fix their annuity rates and buy their annuities now, after hefty rate cuts in recent months and the prospect of more of the same caused annuity rates to slide. There has been an expectation that level annuity rates will to start to slide for some time. This is now being seen because of global interest rate cuts.
Prudential has cut its inflation-linked pension annuity rate by £160 to £3,866 this month. Canada Life, interestingly, aggressively increased its rates to top the inflation-linked annuity rate table last week, raising them by £83 to £3,998.
Looking at the situation as a whole, retirees are still better off today than they were at the start of the year when level annuity rates were some 5% lower. This situation is likely to change soon, though.
