Investors Abandon Annuities Ahead of Pension Changes

In just two months you will be granted the freedom to do just what you wish with your retirement savings, as compulsory annuity purchase is scrapped for UK pensioners

Emma Wall 2 March, 2015 | 3:23PM
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Approaching retirement? Chances are you’re playing the waiting game. In just two months you will be granted the freedom to do just what you wish with your retirement savings, as compulsory annuity purchase is scrapped for UK pensioners.

Currently you have to prove you can provide yourself with a fairly sizable income in retirement to avoid having to lock into a fixed retirement income. In the past, before the global recession and plummeting gilt yields, buying an annuity and locking into a guaranteed retirement income – around 8% a year of your pension pot – was a very attractive offering. Annuity rates are linked to gilt yields, and in June 2008 a 15 year gilt paid 5%. Fast forward to December 2014 and a 15 year gilt paid just 1.68%. Those retiring over the past decade have faced a double hit – as well as falling gilt yields, the stock market tumbled losing their retirement capital.

Now, thankfully, the stock market has picked up; the FTSE 100 topped its all-time high record last week, the S&P 500 has been on a steady incline for five years, and European stock markets have been buoyed by the promise of ECB quantitative easing.

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Emma Wall  is former Senior International Editor for Morningstar

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