Pension annuity rates of 2009, soon to be historical annuity rates. Where next for annuity rates? Whilst the majority of annuities taken out in the UK will offer fixed pension annuity rates, the rate that you are offered varies from week to week. This is because the rate that annuity providers can offer you will depend on the yield from government bonds as well as other fixed investments. In fact, pension annuity rates on average have fallen about 11% in the last 12 months alone, and are set to fall further.
The reason why annuity rates in have fallen recently is largely being blamed on the government programme of printing money, known as quantitative easing (QE). The Bank of England (BoE) has bought up £175 billion pounds worth of government gilts, in efforts to pump money into the exchequer to deal with rising debt in the public finances. However, by doing this the yield has actually fallen back, as the price of these government bonds has gone up. Consequently, many UK annuity providers have cut their rates.
Aside from buying up these government bonds, annuity providers also invest in bonds issued by large companies. However, because there is a growing likelihood that companies could default on these bonds during the recession, many annuity providers and insurance companies have been investing less in them, holding back their money and ensuring they hold enough capital. This has meant that they have less money to pay out in the way of pension annuities and so cut rates accordingly. So 2009 pension annuity rates have been in freefall, and they will only rise in the future if the yield from gilts increases. This could happen if inflation starts to rise again, however with depressed demand, this does seem pretty unlikely at present.