As the referendum dust settles and the ripple effect sets in, people looking to retire are asking themselves if the current turmoil caused by Brexit will affect their pension. We explore the difficult decisions that could lie ahead for soon to be retirees, and why those looking to fund their retirement through an annuity should do so sooner rather than later.
What’s The Appeal Behind An Annuity?
To ensure a reliable, fixed income throughout retirement, many pensioners opt to buy an annuity with their savings. This provides financial security for the rest of your life.
Knock On Impact: How Are Annuities Affected?
With the Brexit outcome continuing to shake the UK economy, volatility and confusion are rife in the pension market. The first blow arrived in the form of confirmed cuts, with two key providers both announcing that they’ll now pay lower rates to those seeking an annuity.
In other words, as the effects of Brexit sink in, you risk getting paid a smaller pension. The is because gilts and annuity rates go hand in hand; as gilts drop, eventually so do annuity rates. Unfortunately, the Brexit outcome has led to gilt yields plummeting – meaning that annuity rates are soon to be affected.
Time Constraints: Get A High Rate While You Can
Brexit’s domino effect on annuity rates means that, if you’re planning on purchasing an annuity, time is of the essence.
Director at My Pension Expert, Scott Mullen explains: “Annuity rates and gilt yields have been dropping over the last year. The events following the referendum have given new momentum to that trend.”
As such, he advises that, if you’re actively seeking an annuity, you need to act fast. Securing a rate now before they plummet means you’ll get a greater fixed guaranteed outcome throughout your retirement.
So Many Options, So Much Change
Not just annuities are affected here. As the economic ground continues to shift following Brexit, many unforeseen changes are likely to affect those looking to retire. For instance, if the UK sees a reduction in the number of migrants, demand for housing will fall. In turn, this will affect house value and as such could impede equity release.
Combine this with the fact that, as of April 2015, you now have flexibility in how you spend your pension pot, and it’s easy to see why many people feel anxious about their retirement finance plan.
How Can An Independent Financial Advisor Help?
Whether you’re interested in an annuity, drawdown, or any other option for your pension, the recent Pension Freedoms and current market volatility means that speaking to an Independent Financial Adviser (IFA) has never been more important.
Pensions Minister Ros Altmann highlights the need for caution when it comes to choosing your pension path in any instance, as not all options will be suitable for you: “I really would urge you to seek independent advice before deciding what is best for you.”
With this in mind, don’t panic and make rash, uninformed decisions. As recommended by Money Helper, an IFA can give you advice specific to your pension. You can get a head start on falling annuity rates, and speaking to an adviser can help you to figure out the best plan for your pension pot depending on your personal circumstances.
For peace of mind as you plan your retirement, contact My Pension Expert for a free, no obligation consultation.