'Lock into an annuity now'
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Investors approaching retirement should look at locking into an annuity now to benefit from stockmarket gains before possible falls in markets and annuity rates, according to Hargreaves Lansdown.
The average UK managed fund has leapt by 31 per cent since March.
Pension analyst Nigel Callaghan says there is a high risk of stockmarkets losing ground but it is unlikely that investors nearing retirement will be able to recover any sudden losses and falling funds will mean a smaller retirement income.
He also says leading insurers have been cutting annuity rates in recent months, with the benchmark rate for a 65-year-old dropping to under 7 per cent this month for the first time in two years.
Callaghan believes annuity rates will fall further before the end of the year due to the Bank of England’s quantitative easing programme as well as in reaction to increased longevity figures.
He says the combination of impressive stockmarket performance and falling annuity rates means that now is the optimal time to annuitise.
He says: “There is a strong case that investors retiring today may enjoy great timing, benefiting from much bigger pension funds following the market surge and locking into better annuity rates than those available in the coming months. Even for investors who are a year or two from retirement, it may make sense to annuitise now to avoid stockmarket and annuity rates moving against them between now and retirement.”
The Retirement Adviser director of retirement planning Nick Flynn says: “People approaching retirement should be monitoring both their fund values and annuity rates very carefully as further rate cuts are likely over the next three to four months and insurers’ mortality assumptions are expected to increase in the new year. Individuals must take advice as acting in a panic can often lead to a very poor decision.”
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