There are many stories in the tabloids at the moment regarding delay of annuity purchase to get higher annuity rates if interest rates go up. The million dollar question is will annuity rates go up even if interest rates do rise?
As annuity rates have been falling recently and are probably the lowest they have been for decades. Do you understand what the cost of delay could be if you do not purchase an annuity immediately?
An example purely fictional for illustrative purposes:
Mr J a 65-year-old retiree, with a fund of £100,000, who deferred buying an annuity by one year, could have to wait 13 years to recoup the lost income. Even worse, if interest rates fall by 1% over the period, the income from the annuity purchased after deferment of one year could fall to £7,406, meaning it would take 184 years for the client to get their money back.
If you delay by one year, though you receive a bigger annual income you will still be £1400 out of pocket after 10 years. However, after 13 years you will start making money, and after 15 years your total income will be £1586 ahead.
No one can forecast what might happen to interest rates and as always if you can afford to wait in the hope that annuity rates increase then that would be a decision you would have to make.
We recommend you seek independent financial advice if you are unsure and an adviser can talk you through the options.
