Rising interest rates are not necessarily a strong-enough reason to delay purchasing an annuity because the opportunity cost of delay can often heavily outweigh the marginal benefits of slightly better gross income.
For example, a male aged 65 with a fund of £50,000 after tax free cash has been taken could have secured a gross annual annuity income with Pru of £3,747.12 on 25 March this year, Chartwell says.
Three months later, the same person would have secured gross annual income of £3748.44.
However, the opportunity cost of securing that additional £1.32 per annum was £312.26 per each of the three months in which annuity income was not taken, or a total of £935.46.
”Taking benefits at the right time is always a difficult call and should ultimately depend on the need for income,” Chartwell says.
”However, our general view that delaying on the basis of a higher annuity rate due to changes in interest rates can be dangerous, as illustrated.”IFAonline
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First mentioned in Cridland Report
Second acquisition of 2019
Guy Opperman has rejected calls to speed up changes to auto-enrolment (AE) despite increasing pressure to boost contribution rates and overall savings pots.