Annuity Rates Expected to Rise

Annuity rates are expected to rise after last week's pre-Budget report sent the price of gilts falling. Recent retirees and those soon to retire are currently facing some of the lowest annuity payouts in history. However as the Bank of England moves towards selling bonds as it unwinds its quantitative easing programme there is hope that this position will change.

Under quantitative easing, the Bank of England has been aggressively buying bonds, pushing up the prices of gilts. This had had a knock-on effect on pension annuity rates. Last week the Bank announced it would be selling corporate bonds, as well as buying them. A fall in the price of gilts increases the yield of the gilts, which in turn determine annuity rates.

Hargreaves Lansdown's pensions analyst Nigel Callaghan says: "The price of gilts has fallen through the floor. The market is spooked by the Government debt and the fact there is no credible plan to begin bringing the budget under control. This should be very good news for annuities because the fall is so dramatic.

"Rates in the short-term should go up if this continues but it could be a temporary blip. Annuity rates are bonkers at the moment. They are surging and falling in ways they have just never done before. It must be a nightmare for the pricing actuaries. This used to be a sleepy world, now there are typically several rate changes a week."