Annuity Rates
If you are considering buying an annuity you'll be keen to keep your eye on the annuity rates as published by various annuity providers. Annuity rates do in fact change on a daily basis, some life companies offering better rates than others. However, not one insurance company dominates the annuity marketplace on annuity rates alone as margins between the rates offered are overall quite small. Additionally, from time to time, different insurance companies tempt annuity buyers with special deals on the "open market" that extend over a very limited period. These special deals often provide buyers with the best annuity rates, and are definitely worth watching out for.
How are annuity rates calculated?
Annuity rates from various annuity providers start off in essentially the same area - government stocks and securities. Ultra low-risk government stocks and securities make up the majority of investment that underpin annuity products. They perform very closely in line with the Bank of England interest rate, the rates of annuity products often fluctuating in line with the base interest rate.
Additional ingredients that go into the mixer to produce a life company's annuity rates include the effects of inflation and also calculated life expectancy. Low inflation and high life expectancy depress the rates of annuity products, making them less attractive to investors.
In the late 80s and early 90s, annuity products were an excellent investment option. The interest rate then was high, spending a lot of the time at between 8% -15%, and so guaranteeing a very healthy ongoing income for policyholders. Today, with the interest rate fairly stable at a low level, average life expectancy increasing by one year in every four years, and with inflation also at a low level, a good annuity product is becoming hard to find.
Shopping around
Despite annuity products now all playing out a similarly stunted existence, it is still worth shopping around for the best annuity deal. After all, once you've bought an annuity there's no going back, so you want to make sure that you're getting the best deal available for that lump sum of yours.
A difference of just a few percent on a purchase of £100,000 can make a significant difference in the income that you receive. You also need to understand what is included in the annuity product. For instance, if you want spouse protection, or for that matter, any other add-on benefit that can be bolted on to your annuity, then you are likely to find annuity providers quoting you different rates. All this can make a substantial impact upon the amount of guaranteed income from the life company that you receive on a regular basis.