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I write regularly about annuity rates and trends. This page has my latest annuity updates and I update it at regular intervals.
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Annuity Update - July 2019
I monitor annuity rates and bond yields on a regular basis and I was surprised and shocked to notice how annuity rates still are.
The lowest point for annuities was September 2016 in the aftermath of the Brexit referendum but even then, the GAD rate held firm at 2%.
So, what should we make of continued low annuity rates?
Annuity rates are still low
We are still in the era of very low interest rates and just when I thought annuity rates couldn’t go any lower, they have fallen yet again. Annuity rates have not plummeted to the lows of 2016 but they are still at historically low levels. .
The benchmark annuity (£100,000, ages 65 and 60 with 2/3rds partner’s pension and level payments) currently pays £ 4,344 per annum compared to £ 3,823 per annum at is lowest ever point in September 2016. Annuities are not at rock bottom but a long way from £5,000 per annum last seen in the summer of 2015.
Income from drawdown
Low annuity rates remind us that the safe income withdrawal rate may be lower than many advisers think. There are many different interpretations of the safe withdrawal rate but if annuity rates are a useful indicator of the sustainable income from drawdown, the safe withdrawal rate may be heading downwards.
Advisers who are still using the 4% rule as their starting point for safe income withdrawals should review this because although drawdown is an investment proposition it is always wise to use the income from annuities as a benchmark when working out much income to take.
It is simply impossible to predict what effect Brexit will have on future interest rates and bond yields but unless the economic and financial climate changes dramatically, it seems there is no end in sight to low annuity rates.
There is still a case for annuities
Finally, it is worth remembering that although annuity and bond yields are at low levels, there is still a case for investing in annuities to provide a level of guaranteed income. The case for annuities gets stronger with age which means that older drawdown investors should be encouraged to think about annuitizing part of their pension pot as the benefit of mortality cross subsidy becomes more attractive.
If you want to make the most of pension freedoms you should start planning ahead and make sure your financial affairs are in good shape in the years running up to retirement.William Burrows
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