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Annuity rates start to stabilise

Advisers have expressed relief that annuity rates finally seem to be stabilising after months of cuts by providers.

Annuity rates have come down by around 10 per cent since the summer as a result of falling interest rates and the effects of quantitative easing. But providers have put a stop to the flurry of cuts for the time being, and some have even increased rates.

The Retirement Adviser head of retirement planning Nick Flynn says: “Rates have definitely settled down now. For months, providers have been updating their rates on an almost daily basis and always downwards. But in the past few weeks, all firms, bar two, have increased their rates. I do not think the effect of quantitative easing was quite as drastic as we first expected.”

Hargreaves Lansdown pensions analyst Nigel Callaghan agrees. He suggests quantitative easing is stalling which is in turn improving gilt yields and boosting annuity rates.

He says: “Quantitative easing caused rates to drop like a stone. There was a whole spate of rate cuts in March. we counted 20 on our panel. That was unprecedented. But it now seems as though quantitative easing is stalling and, whether this is a temporary blip or not, the net result is that the wave of annuity rate falls has stopped and indeed of late there has been as many rate increases.”

But Callaghan warns against predicting which direction rates will go from here as markets are still volatile. He says: “At the moment, I think rates are as likely to go up as they are to go down but I think it would be foolish of anyone to predict what will happen because the market remains in such a state of flux.”

According to Hargreaves Lansdown, a 65 year old man with a pension pot worth £100,000 taking the best annuity rate on the market could have received an annual income of £7,900 in July last year compared with £7,070 now.

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