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Annuity rates rebound from September record low
Guest Author:
Paloma KubiakAnnuity rates have edged upwards seven times in the last month, bouncing back from the record low seen in September.
It’s been a tough few weeks for annuities as 2016 was set to be the worst year for the product; it was revealed 90,000 enhanced annuity sale customers could be due redress, and just this week, the government confirmed it would scrap plans allowing those with annuities to sell them on for a potentially better rate.
But since last month’s record low, where a £100,000 pension pot would give a retiree an annual income of less than £5,000, annuity rates have risen by 3.4% in four weeks.
Since 21 September, after seven annuity rate rises, Hargreaves Lansdown calculates those approaching retirement would get an extra £168 per year for a 65-year-old smoker.
Nathan Long, senior pension analyst at Hargreaves Lansdown, said: “Those nearing retirement and in need of secure income are starting to glimpse the light at the end of the tunnel. Annuity rates have bounced off their mid-September lows. They could go higher, but it’s uncertain if or when this may happen. Delaying decisions provides no certainty of more retirement income and many people do not have this luxury as they finish work and need a replacement salary. For those who cannot tolerate a drop of income in retirement, annuities still have an important part to play.”
He added that shopping around for the best income remains critical and lists five top tips on what those closing in on retirement should do:
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- Plan early: Everyone should start planning in earnest from at least age 50. This allows extra contributions to have an impact and also helps ensure you are invested in the right place. Planning the final years of work is useful too. You might be one of the growing number of people working part time or becoming self-employed as retirement approaches.
- Work out your income needs: Most people look at what their minimum requirements are to cover their essential living costs and then have a higher, preferred income level.
- Work out your retirement incomings: Retirement income can come from many sources. Work out what you will be receiving and whether it matches your income needs. Consolidating pensions ahead of retirement will make keeping track of your plans easier.
- Consider a mix and match approach: Your essential needs should ideally be met from guaranteed forms of income such as an annuity or state pension. If current annuity rates aren’t appealing you can spread the risk that you buy at the wrong time by splitting your pension.
- Understand the risks of income drawdown: Those shunning annuities entirely should ensure they know the risks. Generally income drawdown works best for those able to tolerate a drop in their retirement income. As a guide, drawing £1,000 a year for every £30,000 of pension should ensure your pension does not run out.