Annuities Still Out of Favour Despite Rising Interest Rates

Annuity rates have risen since 2016 but retirees are still favouring pension transfers and drawdown

Cherry Reynard 20 November, 2017 | 11:56AM
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Bank of England building

While it may only be a gentle 0.25%, the recent rise in interest rates represents a notable change in direction for the Bank of England. It suggests the era of record low interest rates is finally starting to reverse. Annuities have been a notable victim of loose monetary policy, with unattractive yields seeing retirees favouring drawdown. Does this change in environment tip the balance back towards annuities?

Even before this recent rate rise, annuities rates had already moved significantly since their nadir in 2016. Nathan Long, senior pensions analyst at Hargreaves Lansdown points out that annuity rates are 19% higher from their low in mid-September of last year, shortly after the Bank of England cut rates following the Brexit referendum. However, to date, it has not prompted any apparent rise in popularity. Annuity sales have fallen from around £11 billion in 2015, to around £4 billion today.

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About Author

Cherry Reynard

Cherry Reynard  is a financial journalist writing for Morningstar.co.uk.

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