Quantitative Easing Your Annuity Income
Will inflation rear its ugly head and hammer the value of fixed annuity income?

Pensions Deficit Tops £300 Billion for FTSE 100 Companies
More than £300 billion is needed by pension scheme trustees of FTSE 100 companies to plug deficits in their schemes more than double the estimated aggregate deficit of £130 billion at the start of the year, according to new estimates.

State Pension Payment Alert   
About a quarter of a million people who make voluntary National Insurance contributions (NICs) each year should think again, the government has said.
 
Final Salary Pension Cuts   
A large pension consultancy firm – Aon recently announced that it plans to cut its contributions to its workers' pensions. 

 

Quantitative Easing your Annuity Income

The Bank of England’s decision to pump a further £50 billion into the economy by extending its QE program gives those retiring now a problem. Do you buy an annuity or not?

 If,as many predict, QE pushes up inflation in the short to medium term, those thinking about the annuity option should be careful. Annuities come in several flavours one of which provides a level income with no future increase. This type of annuity can be popular since it typically gives the highest income immediately. However, this relatively high annuity income could soon look paltry if rampant inflation starts to eat away at it.
 
One option might be to consider income drawdown. Income drawdown allows for tax free cash to be taken straight away and gives the option to take an income direct from the pension fund without the need to by an annuity. The pension remains invested and so benefits from any upward movement in stockmarkets (and suffers from downward movement).
 
Those not needing pension income straight away can choose not to have one or they can draw an income and re-invest it straight back into the same pension building a further tax free lump future use.
 
More cautious investors might be attracted to the certainty and simplicity of an annuity but even cautious investors might decide the risk of inflation is too high to take an annuity now.
 
Will we have the Bank of England to thank for the Quantitative easing of our annuity income in future? There is no simple answer and everybody will have their own view but one thing is certain - these are interesting times for people retiring now or in the near future!
 
Always take Independent Financial Advice before investing.
 
Mike Hardy
Managing Director
Abacus Advice Limited
14:35 7th August 2009
 
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