In a bid to get Britain out of its current economic decline the Bank of England made the decision to decrease interest rates further to 0.5% and inject £75 billion into the economy through quantitative easing i.e. printing more money. It was suggested that a significant proportion of those funds would be invested in gilts and other financial instruments with the intention of increasing the money supply in the country. The full range of consequences were admittedly unknown to the Monetary Policy Committee at the time of the announcement, however the over arching aim was to return confidence to a battered financial services industry.

One consequence that has materialised from the injection of cash into the gilts market is the significant increase in the price of these assets which in turn has driven down the rate of return. Among other segments, the people most likely to be hit by this are those reaching retirement age and looking to purchase an annuity. Since most insurers rely heavily on the returns from gilts to fund their annuity products many such as Norwich Union and Legal and General have already cut their annuity rates in light of the government’s announcement. This is on top of a 10% decline in rates from the 6-year high last year. The total sum of these changes means that many retirees looking to purchase an annuity will get no where near the rate of return anticipated, which will have significant consequences on their retirement plans.

One way to ensure that you get the best deal is to shop around, as there is a wide variation in annuity rates across the market. In addition, being more flexible with the way you invest your pension pot is also important to protect against the volatility in the marketplace. One option is to divide the pot into a number of annuities over a period of time. It is important to seek financial advice to ensure that you are getting a product that meets with your own individual circumstances.