-
Annuity rates at all-time lows
-
Risk free returns are difficult to come by for drawdown investors
-
Cash savings rates remain low
On the positive side:
-
The low mortgage rates have freed up money for saving
Steven Cameron, Pensions Director at Aegon said: “Annuity providers base the rates they can offer on the return on long term fixed interest investments such as government bonds or corporate bonds. Low base rates tend to be accompanied by correspondingly low yields on these investments, and when coupled with the Chancellor’s programme of Quantitative Easing, means annuity rates have been at a historically low level for the last 7 years. Annuity rates are also affected by life expectancy and as this has been increasing, this has led to further downward pressure on annuity rates, except for those lucky enough to have a guaranteed annuity rate.
“It could be argued that the long term trend of low annuity rates, energetically highlighted by Ros Altmann in her consumer champion days, may have been a factor in encouraging the Chancellor to introduce the pension freedoms. However, even those who are now taking advantage of new means of accessing their retirement savings are affected. Those opting for flexi access drawdown for example will find risk free returns particularly low and while equities may offer higher returns, they are also more volatile, leading to growing interest in guarantees.
“Many retirees and older savers have their cash locked up in long-term cash bonds which pay steady rates for several years. The best of the pre-crisis savings deals have long since expired and savers will be lucky to get 2% for tying their money up for two years.
The scramble for the generous but now closed NS&I pensioner bonds was a reflection of this.
“On a positive note borrowers have seen the costs of their loans plummet. Many people will have had an opportunity to pay down their debts far quicker than in previous years whilst building equity in their properties. Lower borrowing costs have also put money back in peoples’ pockets and canny individuals might be well served in retirement by saving the difference.”
|
