The rise in annuity rates is good news but may be short-lived

Annuity rates recently rose for the first time in more than a year, but be warned that the improvement may be short-lived.
Six insurance companies have increased the rates they pay on annuities, which are used to convert a pension pot into a regular retirement income, during the past week, as rising bond yields feed through into the annuities market, according to financial adviser Hargreaves Lansdown.
The group said the move had led to its Annuity Index rising for the first time since June 2009, with a £100,000 pension pot now buying an annual income of £6,428 for a 65-year-old man who opts for a pension that does not rise in line with inflation, up from one of £6,291 a month ago.
But it warned that the improvement may only be a short term one, as there were many factors that were likely to push rates back down again.
Laith Khalaf, pensions analyst at Hargreaves Lansdown, said: “Annuity rates have ticked up but this is not necessarily the start of a sustained trend. The case for them falling back in the near term is as strong, if not stronger, than the case for further rises.”
A fall in inflation expectations would lead to a drop in bond yields, which would feed through into lower annuity rates, while further quantitative easing by the Bank of England would also depress yields.
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