Bond turmoil causes annuity rates to surge

The turmoil in the bond markets has caused annuity incomes to soar by almost 50% in the last three years, new data shows. A 65-year-old with a £100,000 pension can now get up to £7,425 a year from a single life level annuity with a five-year guarantee. That’s up from £7,235 a year last week and up 48% on the £5,003 that was on offer three years ago. The data comes from Hargreaves Lansdown’s annuity search engine. Long-term gilt yields have fallen because of the ongoing turbulence in the bond market pushing up annuity rates, said Helen Morrissey, head of retirement analysis at Hargreaves Lansdown. She said: “Annuities continue to provide great value, and we can expect to see interest in them continue to increase, with many retirees deciding that now is the time to take the plunge and get a guaranteed income for life." She predicted that there could be further income rises in the weeks to follow “and this could push incomes up to the highs we saw in the aftermath of the mini-Budget.” Ten-year gilt yields have been hitting their highest levels since the financial crash. Last week the yield on 10-year gilts nudged 4.9%, the highest since 2008, while 30-year gilts yields hit their highest level since 1998. Tom Selby, director of public policy at AJ Bell, said: “Rising gilt yields in 2022 – particularly following the Truss-Kwarteng mini-Budget – saw rates improve dramatically, and the recent gilt yield resurgence should also filter through to improved annuity returns. This means annuities are likely to come on the radar for millions of retirees who previously might have dismissed them as poor value.” Annuities have had a huge resurgence in popularity since the disastrous Kwarteng mini-Budget. The Association of British Insurers reported a 50% rise in sales in the first half of 2024, compared to the same period the year before. In early December Legal & General reported that sales were up 55% compared to the same week in 2023. It said it had a record year in 2024 for annuities with the firm’s sales topping £2bn.

Bond turmoil causes annuity rates to surge

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