Fall in annuity rates 'not a great surprise'

09 November 2011

Annuity rates have continued to fall in recent weeks, which could lead to older people investigating other options for their finances during their retirement.

According to a new study published by Alexander Forbes Annuity Bureau, rates fell once more in male single life annuities during October.

Gemma Goodman, head of operations at Alexander Forbes Annuity Bureau, described the drops as "large" and pointed out they have been taking place for three months in a row now.

She described it as a worrying trend and highlighted the fact that older people may be concerned if they have an annuity, due to the fact that inflation has risen to such a high level.

Over five per cent

It currently stands at over five per cent, which is the first time it has gone above that mark in more than three years, while the Bank of England's Monetary Policy Committee appears to be reluctant to increase the base rate of interest in a bid to bring inflation under control.

The target rate that has been set is two per cent but inflation has risen steadily since the coalition government came to power in May last year, while interest rates have been held by the committee at 0.5 per cent - which is a record low for the UK - for two-and-a-half years.

Utility bills

Ms Goodman explained how rising utility bills are partly to blame for the increase in inflation to more than five per cent, as each one of the country's six major gas and electricity prices have put up their tariffs in recent months ahead of the winter.

Older people are particularly affected when the cost of fuel to heat their homes goes up and many find it hard to balance the bills as a result of being unable to afford gas and electricity.

"Given the recent hike in inflation, this month's falls in inflation-linked annuity rates do not come as a great surprise," Ms Goodman pointed out.

"Expert opinion is mixed on whether consumer prices will continue to rise over the next few months, but with people living longer, inflation protection remains an important consideration when shopping around for an annuity," she added.

MGM Advantage's research recently found that conventional annuity rates fell by four per cent between June and September this year.

Using the equity release calculator from Key could be a good option for those who are concerned about their retirement income.