Tag Archives: Buying an Annuity

The Current State of the UK Annuities Market

The UK annuities market is in turmoil. This might seem like an exaggeration, but unfortunately it is not. For those who are nearing retirement the option of buying an annuity is simply not what it has been in the past. A few years ago you could buy an annuity when you retired and legitimately expect it to give you a fair degree of financial stability. Which is after all what they are designed to do – to make sure that you have a regular income from the moment you retire until your life ends. This is the brief of an annuity and unfortunately the UK annuity is just not taking care of retirees like they once did.

The current UK annuities market is being affected by a number of exterior forces. Because annuities are in essence a financial product they will be susceptible to changes in the market. With uncertainly prevailing in the Eurozone, the effects on UK annuities have been unsettling to say the least. On the one hand the uncertainly of the Euro remaining the single currency through Europe has meant an increase in gilts and bonds which have decreased UK annuities rates. On the other hand the Bank of England is also printing more notes, which has negatively affected the annuities rates.

Added to this is the new gender ruling, which prohibited annuity providers from offering different annuity rates, based on gender. This will mean that annuity rates for men will in all likelihood decrease, while UK annuities for women will remain the same. There is also the Solvency 2 ruling, which will force insurance companies to be more circumspect in their investments, and this will also negatively impact UK annuities rates.

There is some logic to the idea that there is a natural floor to how low UK annuities rates can go, and it would seem that we are pretty much there. The floor would mean that a person would simply get back the amount of money they invested in the first place, with no extra from the investment. This is where the UK annuities market is heading, but after that, once the Eurozone has settled and the financial markets begin to stabilise, there is a good chance that annuity rates will improve. It will take a few years for this to come into effect. But the outlook is not completely dark; there is some light at the end of the tunnel.

Knowledge is Power When Buying an Annuity

Annuities are one of the most popular ways for people to turn their life savings into a regular income during retirement. In fact, the annuities market in the UK is the largest across the globe. There are different types of annuities, but on the whole an annuity works like this: the annuity provider, which is essentially an insurance company, agrees to pay you a regular income, either fixed or variable, for a fixed term, or for as long as you live. As an annuity once purchased cannot be cancelled or returned, buying an annuity is a decision that warrants extremely careful consideration.

The first step in making a correct choice when buying an Annuity is understanding your own needs and priorities. Knowing exactly what you need will help you make the right choice. For instance, is having a fixed, steady source of income throughout your life more important to you than risking a higher income with an investment annuity? If so, a conventional annuity may be more suitable for you. Or, would you prefer to have an annuity that grows with time, at the risk of settling for a smaller pay-out in the initial stages than a fixed life annuity? If so, an escalating annuity might be more suitable for you.

Buying an annuity correctly requires an understanding of the annuity market and how different annuity products work. You can find lots of information about annuities online through advisory websites, or even through different annuity providers. This includes finding out about different bells and whistles that may make an annuity work better for you. Buying an annuity that works best for you is all about looking in the right places, exploring the right resources and using the tools that are readily available to you.

For instance, an annuity calculator can help you determine the maximum income that you could generate through an annuity. Online annuity calculators are now widely available, and are easy to use, quick and convenient. Most calculators require basic information about your age, gender, location, and health and lifestyle habits to work out an accurate quote.

When buying an annuity, knowledge of all the aspects of the process is akin to power. The more you know, and the more knowledgeable you are, the more likely you are to find the right annuity.