Emma Wall: Earlier this month Mark Carney and the rest of the Monetary Policy Committee of the Bank of England voted to lower interest rates to 0.25%. This was a long time coming, this change. However not the way that people were expecting.
This was supposed to be the year the interest rates rose for the first time in seven years. With interest rates falling and expected to fall even further next month perhaps down to 0.1%. It also means that bond yields across the board have fallen including Gilt yields.
The 15-year Gilt yield is now 1.14%. It was 2.2% earlier this year. Why should we care about the 15-year Gilt yield? Well this is the yield on which annuity rates are based. Of course it's no longer compulsory to buy annuity, but they remain the only product on the market which guarantees you an income for life in retirement. They didn’t look very attractive at 2.2% but they look even less attractive at 1.14%.
We advocate at Morningstar a portfolio approach to retirement investing. Of course you are free to look into the open market, do DIY investing, consult an advisor whatever is best for you. But remember the only way to guarantee an income for life even if it's just for those essential expenditures is through an annuity.
Annuity rates will rise, it's the time frame that’s unsure. So if you can afford to wait to put off that annuity purchase, do so. Otherwise you might want to consider what the future annuity rates will look like when they lower base rate to 0.1%.