Annuity rates are directly effected by gilt yields, and these yields have fallen to yet another record low as investors’ ongoing appetite for UK debt stays strong with the continuing eurozone woes we are witnessing currently. During recent trading, yields on the so-called benchmark 10-year gilt reached a new low of just 1.92%, according to Tradeweb. It was even lower than the previous all-time low of 1.922% seen at the end of 2011, and is the lowest level seen since Bank of England (BoE) records started way back in 1703. The Debt Management Office (DMO) confirmed it was indeed the lowest ever gilt yield seen on a UK 10-year gilt.
The fall in yields came days after both France and Austria lost their valued AAA-ratings from Standard & Poor’s, and continues the move to perceived quality seen in recent months. Gilt yields have fallen heavily as the eurozone crisis has got worse, with the yield on the 10-year gilt falling more than 30% in the last six months alone. It stood at much more healthy 3% back in July, 2011, and this downward trend has continued into this year, with gilts starting 2012 with a yield of only 2.02%. Many have warned against buying up gilts now, with expected duration in longer-dated gilts around 18 years. With this duration so high, a small move up in gilt yields could have tough consequences for investors, but for now they continue to back gilts over most other sovereign debts around the world.
So, as gilt yields fall, annuity rates fall with them. Timing of an annuity purchase is therefore very important, but for many people not something they can really control. That is why other contracts should at least be considered, where you don’t have to commit yourself to a low annuity rate for life. Give yourself some flexibility, some breathing space – you don’t have to make a one-off decision when you retire, you can get yourself some thinking time with other retirement solutions. Experts don’t think that annuity rates will go up in the foreseeable future, and I tend to agree. However, if you are going to buy an annuity, at least make sure you get the best annuity rates available.
