UK pension annuity rates in 2010, just where might they go? Will pension annuities be better or worse than in 2009? Some comments on this and other things financial. 2009 was not a good year for pensions, except perhaps for a certain Sir Fred Goodwin. Company pension scheme deficits grew substantially, low interest rates in the UK pushed up annuity costs and the Chancellor cut available tax relief for top earners’ pensions not once but twice. These trends (unfortunately) may well continue into 2010. It may be sensible for people to take advantage of available tax breaks sooner rather than later.
One change regarding pensions has already been announced. From April next year, 2010, the minimum age for taking a tax-free cash lump sum from your pension fund will increase from age 50 to 55. If you might get caught up in this age band, you need to act soon if you want to secure your tax-free cash lump sum early, although you will be too young to be looking at pension annuity rates. Pensions offer very attractive tax benefits for higher rate taxpayers and scrapping top-rate tax relief or the tax-free cash lump sum would save the government many billions of pounds each year.
So, if you can afford to, it might be prudent to take advantage of current pension tax breaks sooner rather than later. Anyone buying a pension annuity in 2010 may find UK annuity rates continue to worsen. It is absolutely essential that you shop around for the best deals and also to make sure you buy the right type of annuity because, once you have purchased one, you are locked in for life. You really need to consider including your spouse in your retirement planning, protecting your annuity income against ongoing inflation and, if you have any health issues, make sure you research information about an enhanced or impaired life annuity — which can pay you much higher annuity rates.
There is a bit of good news for savers: the annual ISA allowance will go up to £10,200 for everyone from April next year. In fact, ISAs may be an attractive alternative to pension saving and hoping for good annuity rates, especially if you are not a higher rate tax payer. Economic growth could recover quite strongly in early 2010, which should be good for stockmarkets as long as interest rates remain on the low side. However, there are big risks of a setback once interest rates start rising later in the year.
