Pension annuity rates hit five-year high

Pension annuity rates hit five-year high

Workers nearing retirement are unlikely winners from the credit crunch following a surge in payouts for pension annuities. If you have been waiting in the wings for rates to improve, some experts say now may well be the time to take the plunge.

Figures from independent financial adviser Hargreaves Lansdown show that rates, which govern pension payouts, have surged to a five-year high.

A male worker with a pension pot of £100,000, retiring at 65, can buy an income of £7,660 a year, compared with £6,920 in March 2006. The 11% rise defies steady increases in life expectancy, which have made it much more expensive to provide retirement incomes.

Annuities are sold to workers with money-purchase occupational retirement schemes or personal pension plans, and provide an annual income from retirement until death.

Nigel Callaghan, a pensions analyst at Hargreaves Lansdown, says the credit squeeze has more than offset the effects of increasing life expectancy. Annuities have benefited from a jump in yields on corporate bonds. A recovery in the stockmarket has also helped.

Legal & General, Prudential, Axa, Scottish Equitable, Friends Provident and Norwich Union are among the providers offering the highest rates.

According to Alexander Forbes Annuity Bureau, Norwich Union has grabbed the top slot for level annuities in May, offering the best rates. But Legal & General is the best across the board for inflation-linked.....continued below

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annuities.

The firm's David Marlow says: "People approaching retirement shouldn't be fooled into thinking the current excellent rates will last. With longevity increasing, the long-term trend is likely to turn back down."

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