Five Questions About: Annuity rates

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Are they finally going up?

It's on the cards That's because bond yields have shot up and there is a correlation between the two with annuity rates tending to track bond yields.

How much have bond yields risen?

The 15-year gilt yield climbed from 2.2 per cent on 2 May to reach 3 per cent by 26 June. But that doesn't mean an instant climb in annuity rates. Only if bond yields remain at their new level for some time will annuity rates follow.

Why don't they move right away?

The price of annuities is based on more than simply interest rates, explains Tom McPhail, pensions expert at Hagreaves Lansdown. "Factors such as changing life expectancy, regulatory controls, underwriting trends and insurers' new business requirements all play a part," he says.

So I should still wait to retire?

You don't want to buy an annuity when rates are low but there's no guarantee they will shoot up. Also, the longer you wait, the more your cash loses money in real terms because it's eroded by inflation.

So what should I do?

Get expert help. Find an independent adviser who can explain your options, such as income drawdown.

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