Annuity history

By THIS IS MONEY
Updated:

 

I HAVE a personal pension plan that I wish to turn into an annuity when I retire at the end of this year. My financial adviser has suggested I could delay it for one year since annuity rates are so low now, but he believes they will pick up.

Do you have a historical view, say over the last five to ten years, of the actual reductions that have taken place for annuities. I would like to see, if possible, a table for the last few years showing the percentage reduction for a typical annuity over these years. this would help me to either agree or not with the advice I am being given. MB.

Jon Minchin, independent financial adviser at Pensionline says: Annuity rates are related to long term (15-year) gilt yields. Currently 15-year long-dated gilts are at a historical low of 4.43%.

Ten years ago they stood at 9% and have fallen steadily since then. However inflation has also fallen steadily during this period so that real returns are not significantly poorer. The danger lies in buying a level annuity at current rates and then finding that inflation starts to rise.

As a general rule you should not buy an income until you need to and of course it is possible to take an income from a drawdown plan and delay the purchase of an annuity until age 75. I cannot see any basis for assuming that annuity rates will pick up next year unless the government is forced to start borrowing lots of money.

'Prudent' Gordon Brown would only do this under extreme pressure since he recently massively reduced government debt with the proceeds from the G3 telecom licence auction.

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