We appear to now have a ‘high cost of retirement’, with all retirement options being involved. The falling gilt yields we have been witnessing are effectively meaning less money for many individuals approaching retirement, and that includes the annuity market and the income drawdown market.
This fall in gilt yields is having an impact on those entering income drawdown arrangements and those looking to buy an annuity. In respect of the former experts are suggesting that investors might begin to feel a bit like the walls are closing in on them with regard to their chosen retirement option. According to Alliance Trust’s ongoing study of age-related inflation, those people over the age of 75 face an inflation rate which is much higher these days than the official rate. This age group has benefited somewhat from the decline in gas and electricity prices, but still they face an inflation rate which is 53% more than the official headline rate and 75% more than the inflation rates facing both the under 30′s and 30-49 year olds.
Shona Dobbie, their head of research, states that they are concerned that the real inflation rate facing the two oldest age groups is that much higher than the official rate of inflation, and much higher than the inflation rate which is facing the other age groups. The elderly are simply not benefitting in the same way with falling prices as the young. All this is having an effect on the ongoing value of income from most retirement options.
The Share Centre have commented that both inflation and deflation are really impostors, and we should approach them both with care. Inflation is the catalyst whereby borrowers steal from the lenders, they suggest, and deflation is the catalyst whereby lenders steal from the borrowers. Which is the one feared most? Probably deflation, as it discourages people taking risks and postpones consumption. But inflation is really a scourge on prudence, they say, and it can cause great damage to the weakest people in society, including the old.
So, if you have been caught out in an income drawdown plan, our sympathies. What about the latter point above, buying an annuity and looking for the best annuity quotes. Unfortunately, annuity rates are also effected by the fall in gilt prices. Maybe, just maybe, there is some light at the end of the tunnel, especially as the government has just started some upward move in gilt yields, by buying up £220bn of gilts.
