The UK annuities market is in turmoil. This might seem like an exaggeration, but unfortunately it is not. For those who are nearing retirement the option of buying an annuity is simply not what it has been in the past. A few years ago you could buy an annuity when you retired and legitimately expect it to give you a fair degree of financial stability. Which is after all what they are designed to do – to make sure that you have a regular income from the moment you retire until your life ends. This is the brief of an annuity and unfortunately the UK annuity is just not taking care of retirees like they once did.
The current UK annuities market is being affected by a number of exterior forces. Because annuities are in essence a financial product they will be susceptible to changes in the market. With uncertainly prevailing in the Eurozone, the effects on UK annuities have been unsettling to say the least. On the one hand the uncertainly of the Euro remaining the single currency through Europe has meant an increase in gilts and bonds which have decreased UK annuities rates. On the other hand the Bank of England is also printing more notes, which has negatively affected the annuities rates.
Added to this is the new gender ruling, which prohibited annuity providers from offering different annuity rates, based on gender. This will mean that annuity rates for men will in all likelihood decrease, while UK annuities for women will remain the same. There is also the Solvency 2 ruling, which will force insurance companies to be more circumspect in their investments, and this will also negatively impact UK annuities rates.
There is some logic to the idea that there is a natural floor to how low UK annuities rates can go, and it would seem that we are pretty much there. The floor would mean that a person would simply get back the amount of money they invested in the first place, with no extra from the investment. This is where the UK annuities market is heading, but after that, once the Eurozone has settled and the financial markets begin to stabilise, there is a good chance that annuity rates will improve. It will take a few years for this to come into effect. But the outlook is not completely dark; there is some light at the end of the tunnel.