Annuity rates squeezed by economic woes
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Annuity rates squeezed by economic woes

 

 

 

 

The struggling European economy is putting the squeeze on annuity rates in the UK and with little optimism for growth across the continent in 2013, low returns for retirees look here to stay for the coming 12 months.

 

The European credit crisis had resulted in a squeezing on interest rates across the continent. The Bank of England's current interest rate of 0.5 per cent has been consistent since March 2009. This has naturally had an influence on interest paid on savings and investments in the country, including annuity returns. This page has information on the latest rates.

 

 

The recent turmoil and uncertainty surrounding the European single currency has also adversely stunted economic growth in the region. When economic growth is suppressed so too are investment growths.

 

Furthermore, with so much uncertainty surrounding European markets, many investors are turning to government gilt bonds which are considered a safer bet.

 

This is resulting in a saturation in gilt bonds markets. When there is high demand for gilts, prices increase and returns on them fall. As gilt yields directly affect annuity rates – higher gilt returns mean higher annuity returns – this has negatively affected the market for retirees looking at annuities.

 

Poor economic conditions are not the only factor to have hurt annuity rates in 2013. Increasing life expectancies mean that pensions are being divided into more annual payments. Naturally this causes the total funds to stretch more thinly and means lower monthly incomes for retirees.

 

Many senior workers are now concerned that retirement may be a far distant goal, if an option at all. Sandy from Brighton said, “I have been working since I was 14 years old. I'm now 64 and I really don't know how I am going to afford to retire. I still have a mortgage of over 60,000 pounds and with annuity rates so low, the income would not cover my living costs and debt repayments.”

 

Despite the low rates on the market right now, there are appealing options for retirees and the best way to explore these is to seek independent financial advice, says Jeremy Alderton, an annuities reporter for the Banking Times. “Plans such as investment-linked annuities and income drawdown are potentially very appealing to retirees but the suitability of these options depends on your personal circumstances. An IFA can help you decide the best option.”

 

 

 


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