Annuity Rates 2012: What to Expect

Annuity Rates 2012: What to Expect




Last year proved difficult for those approaching retirement, as pension funds fell considerably in real value. With the prospect of a smaller income at retirement many prospective retirees have been left wondering what the future holds.

What can we expect in 2012?

One of the biggest problems facing those wishing to buy an annuity in 2012 is stubbornly low Gilt yields. Gilts are also known as government bonds. While low Gilt yields may be good news for the government in that they ease the pressure of national debt, they can spell trouble for those looking to buy an income with their pension fund.

There are also other factors that look likely to affect annuity rates in 2012 including changes to the gender law.

Why do Gilt yields affect pension income?

Insurance companies often invest in combination of obtain government and more risky corporate bonds.

The performance of Gilts, has a major influence when it comes to setting annuity rates, and many will be watching yields closely across the coming year.

When Gilt yields fall, and such investment proves less profitable, insurance companies will tend to set their standard annuity rates at a lower level, and this will have a negative impact on the rate that you can expect to get for your pension pot.

As the Euro crisis bit in 2011, and countries across Europe confront an uncertain financial future, many investors sought the relative safety of the UK bond market. As need for gilts increased, yields were pushed down contributing to collapsing annuity rates particularly towards the end of 2011.

The good news for prospective pensioners is that the Euro-zone crisis will ultimately reach a resolution, which could consequence in investors braving the waters in other places, decreasing need for UK Gilts and driving yields up once more. However it is difficult to predict when this might happen, and those retiring in 2012 may not necessarily enjoy the benefits.

The second round of quantitative easing that we saw in 2011 may have also had a negative affect on Gilt yields, and if there are any further quantitative easing measures in 2012 we could see annuity rates pushed down again in 2012.

Gender law

Come December 2012 a new law will kick in meaning that insurance companies are no longer permitted to differentiate between the sexes when it comes to setting an annuity rates. The new uni-sex annuity rates is likely to excursion rates up slightly for women and down for men.

So what does it all average?

Although there may be some potentially positive developments over the coming year, as always the outlook is uncertain and extremely difficult to predict precisely.

What should you do if you are approaching pension age?

The meaningful is not to panic and to research all your options. There are a number of ways in which you can enhance your chances of getting a better annuity rate for your hard-earned pension fund. Shopping around is now more important than ever, with factors such as your age, health or gender nevertheless contributing to the individual rate obtainable to you. You may also want to consider delaying taking an annuity, taking a fixed term deal, or phasing your pension by taking pension drawdown.




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