Annuity rates have shot up by as much as 50% in the last year – and for those approaching retirement, the advice not to discount annuities as a way of funding your post-work life is compelling.
According to new figures from Canada Life, the break-even point at which retirees get their money back from an annuity investment has fallen by five years, to just 14.5 years for a 65 year-old; the latest annuity tables showing a level rate single annuity paying over 7% at that age (bear in mind that annuity rates do vary on a daily basis, so that figure may be higher or lower by the time you actually read this).
This rapid rise, which is tied in with increasing long-term gilt yields, means that those who might have discounted going down the annuity route may want to reconsider.
Of course, everyone’s needs and aspirations will be different, as will their attitude to risk. But equally, it is important to remember that you don’t have to use your entire pension pot to buy an annuity.
You might decide, for example, to buy an annuity which (along with other guaranteed income sources such as the state pension and final salary schemes) will cover your projected essential expenditure such as housing, utilities and food, and then leave the rest invested, to be drawn down on an ongoing basis during retirement.
This is why planning for retirement is so important; not just when and how to invest in a pension pot (hint: early and often), but also how to take that pension when you do finally retire. With the market moving so fast, and with annuity rates at levels not seen since the banking crisis of 2008, everyone should approach such planning with an open mind.
While everybody should be reviewing the performance of their pension pot throughout their working life, proactive planning in the final year before retirement can make a huge difference to the security and quality of life you will enjoy once you stop working.