Annuity Payout Rates Hit Five-Year High in U.K.
May 5, 2008
Annuity payout rates have hit a five-year high in the United Kingdom amid a “rate war” among providers, according to a newswire report.
The volatile market has already seen an unprecedented 39 rate changes this year, according to the report. This includes 17 rate changes in the last month, of which 88% were increases.
The yield for a 65-year-old male has jumped to 7.66% from 6.92% two years earlier, according to Hargreaves Lansdown analyst Nigel Callaghan. He attributed the rate war to several factors, including the credit crunch that has led to the widening of spreads on financial corporate bonds.
As life expectancy rises in the U.K., the payout rates could go down, Callaghan said, but they could go higher if the economy continues to weaken, inflation increases, and interest rates rise in response.
He is encouraging investors to annuitize now if they are planning to do so because of the fluctuating rates. Prudential Plc (unrelated to U.S.-based Prudential Financial), Legal & General and Aegon Scottish are the leading providers in the rate war, according to the newswire report.
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