Pensioners offered major boost after ‘years in the doldrums’ – good news for retirement | Personal Finance | Finance
After dominating the retirement market for many years, annuities fell out of favour due to the Pension Freedoms legislation of 2015. However, this could all be about to change if the Bank of England increases interest rates.
While rising interest rates are bad news for many, an increase tomorrow could help Britons with savings and pension pots.
An annuity is a type of pension which converts savings into an annual pension providing someone with a guaranteed income for life or a specified period.
After years of lethargic annuity rates, Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown said anyone with one of these types of pensions could be in for a treat tomorrow.
She explained: “After years in the doldrums annuity rates are on the rise with tomorrow’s expected interest rate rise expected to bring a further boost.”
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Once purchased, an annuity cannot be changed leading people to feel they are missing out on the potential for higher rates.
Ms Morrissey advised: “However, there is no obligation to annuitise your whole pension on one day, you can annuitise in stages throughout your retirement.
“This enables you to secure a level of guaranteed income to secure your needs while leaving the remainder invested.
“It also means you can benefit from better rates as you age.”
When it comes to considering annuities, Britons should consider:
- Someone with a £100,000 pension could get £5,940 per year from an annuity – the last time rates were this high was August 2014.
- If the Bank of England increases interest rates tomorrow, Britons will see a further surge in annuity income.
- Annuity rates have been on an upward trend in the past year after many years spent in the doldrums.
- In the aftermath of the Brexit vote in 2016 someone with £100,000 could only get an income of £4,495 per year.
- Annuities have declined in popularity in recent years with the advent of Freedom and Choice. Once purchased annuities cannot be unwound so people are concerned about locking into poor rates for life.
- You don’t have to annuitise your whole pension all at once. You can annuitise in stages throughout retirement which allows you to take advantage of better rates as you age.
