Have you ever thought about longevity, inflation, and getting the best UK pension annuity rates. Probably not, but pension annuities can be quite fascinating to some. We are all living longer these days and there can be a real risk that we will outlive our retirement assets. The average life expectancy for a 65 year old man in 2009 is an additional 21 years, i.e. to age 86, and for a 65 year old woman it’s an extra 23 years, i.e. to age 88, and, as far as we can tell, this average life expectancy is continuing to increase year on year. We must all be living a very healthy lifestyle, or perhaps it’s the medication.
An annuity pays an income for life and therefore is an effective insurance policy against longevity. However, annuities are criticised for various other factors, particularly the inability to pass any remaining, unused, capital on down the generations upon premature death, and the fact that they are perceived by many as a poor investment. Mortality cross subsidy, technical term, is an important feature of annuities with the annuitants that die before they achieve their average life expectancy, enhancing the benefit of those annuitants that live longer than their average life expectancy.
Another area of significant risk that can affect a retirement portfolio is ongoing inflation, particularly when linked to the increase of life expectancy as outlined above. It is entirely feasible for retirement to last in excess of 30 years and during these three decades or so is a time we could endure a whole range of varying inflation. At an inflation rate of 3% per year for 20 years a retiree would need £27,000 a year to maintain the same purchasing power as a starting retirement income of £15,000 per annum. Hopefully with the best pension annuity rates to ease the situation and maximise the buying power of the pension fund.
These days, with the breadth of different investments allowed and the choice between pension annuity purchase and income drawdown (was unsecured pension), plus the option of phasing retirement, the management of risk can be very important. The move from defined benefit (DB) pension schemes to defined contribution (DC) pension schemes has fairly and squarely put risk back onto the individual and ongoing management of that risk can mean the difference between a comfortable life in retirement or not. It is not all about just getting the right UK annuity rates, it is about getting the right retirement solution, and this could vary greatly person to person.
