Will future UK annuity rates be higher? Or will they be lower? It is difficult to predict future annuity rates, and whether their trend will be up or down. The once quiet world of annuity rate pricing is rapidly changing, as the various annuity providers (the insurance companies) try to manage the various new and unexpected factors that determine the annuity rates they offer to retirees. The government’s Quantitative Easing (QE) policy might well be at an end, though we aren’t exactly sure about this situation. If it ends it could lead to a fall in gilt prices and therefore an increase in gilt yields. Insurance companies use this gilt yield, amongst various other things, to calcualte annuity rates.
What about the situation we keep reading about in Europe? Every day we are reading more about the weakness of the Greek economy as well as the Euro currency in general and all this is adding doubt to the resilience of the overall European debt market and is causing something of a surge in their debt yields. This isn’t exactly good news but it could actually lead to an increase in UK annuity rates if UK inflationary figures rise from their current lows.
What about deferring purchasing your annuity? The news about the various economic issues around the world might well tempt people approaching their retirement to put off making a decision about purchasing an annuity until annuity rates hopefully increase. However, this could be quite a risky strategy. Insurance companies are likely in the near future to be forced to maintain far larger capital (or cash) reserves, possibly at the expense of the pension annuity rates they offer, due to major new European financial legislation, which actually comes into force in 2012. This legislation could force annuity rates to be reduced by as much as 20% according to some experts.