Higher borrowing costs might not be good news for the Treasury, but they do present an opportunity for pensioners. For people retirement planning in Cheshire and elsewhere, this may mean higher rates offered on annuities.
When yields on long-term government bonds (or gilts) rise, this increases the rates pension firms offer on financial products such as annuities which guarantee an income for life. Therefore, if you are a relatively healthy 65-year-old with access to a £100,000 pension pot, you would be able to earn around £7,800 a year in 2025, instead of £7,100 this time last year. This figure amounts to almost a 10% increase in annual income. As such, many firms specialising in pensions have reported increased demand for annuities.
Retirement analyst for Hargreaves Lansdown, Helen Morrissey, says that annuities are increasingly appealing to people with larger pensions. This group is now incorporating annuities into their retirement strategies. She added that it is a myth they only appeal to people with smaller pensions.
With the high current yield on gilts, this means that annuities are at their highest level for decades. Ultimately though, the decision for many investors is whether to retain their pension funds and live off the income instead. If opting for annuities, the key thing is to choose the right one carefully. It is worth bearing in mind that unlike an inflation-linked product, an annuity won’t go up every year, and nor will a single-life annuity provided for a spouse when you die.
