If you're wondering when we might see annuity rates climb again, you're certainly not alone. If you're anywhere approaching retirement you're also likely to be asking why your fund is much less likely to convert into a sizable pension income than that of the previous generation. So why are annuities rates so low?

When you purchase an annuity with your hard earned pension fund there are a number of factors that will influence how much you can expect as a pension income. As you probably already know these factors can include the size of your pension fund, your age, your health and, until next year at least your sex. But perhaps the most important factor is your provider's current standard annuity rates which can rise and fall according to the market.

What sets the provider's "standard" rates?

In the past annuity rates often mirrored the fluctuations in yield on government bonds, also known as gilts. This was because many large insurers providing annuities would invest in government bonds. Nowadays things are a little more complicated, and most insurers also invest in other fixed interest investments too such as corporate bonds.

So, in other words the rate you are offered is likely to be largely based on the state of the market. Government bond yields are particularly low at the moment, and with increased risk to businesses due to economic strife, corporate bonds may becoming generally more risky.

The age factor

Also influencing lower annuity rates is the increasing life expectancy of those reaching pension age. The simple fact is that the longer we live, the longer the annuity provider is likely to have to pay out for. There are very few drawbacks to living longer, but decreased annuity rates are a potential candidate.

When will the situation improve?

Annuity Rates have hit a low, if the market picks up they may yet rise again, but predictions are difficult to make. In the meantime it is worth considering that there are also other ways to boost your potential for getting a good pension income. For example, if you suffer from a health condition or are a smoker you may qualify for an enhanced annuity.

Gone are the days when you could expect a sizable income handed to you on a plate, at least for now, but there are still ways to improve your likely pension income for a more comfortable retirement.

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John T Hughes writes for Annuity Rates UK, a site that connects consumers to annuities advice they can trust.

Source: http://www.articletrader.com

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