As the Eurozone crisis rages, many people approaching retirement age will be worried about how they fit in to the wider picture of financial security – especially in relation to annuities, which have been falling more or less constantly in recent years.
An annuity is a regular income paid out in exchange for a lump sum, usually after years of paying into a tax-free pension fund. They’re intended to be guaranteed for life, irrespective of lifespan (although the amount in each regular payout is age-dependent).
What is the Fate of Annuities?
For the lucky few who retired when the market peaked, it’s all cruises and second homes. But for those currently awaiting an annuity, the outlook doesn’t look as rosy.
Pensioners have in fact been getting squeezed for longer than most, with many reports citing a year on year drop off in rates since the early nineties. So what is happening to annuity rates? And how can people prepare for them to continue falling?
In short, the ongoing financial meltdown in Greece has severely dented the confidence of many investors, who have moved their money to British and German bonds, resulting in rising prices and falling yields.
What About Other Investments?
Of course it goes much deeper than that. Increased life expectancy has lowered the returns for everyone approaching retirement, as has a move towards more gender equality between annuity prices. In the face of an aging population, many governments and banks are in denial about the prospects for pensioners, arguing that the rising value of bonds will compensate for lower rates.
But many people simply don’t invest in bonds or corporate funds, and are wholly reliant on stable annuity rates. Those feeling the pinch are advised to seek some alternatives for their future financial security, and to shift their focus away from traditional annuities.
Remember, once you buy an annuity the rate is fixed, so even if rates go up in the future, your payments remain the same. Cast around on the web by searching for best annuity rates UK, and look at alternative investment funds (this article offers some solid advice on investment) so you can stop worrying and start enjoying your retirement.
How have lower rates on annuities affected your retirement accounts?