Major updates on annuity rates, pensions and mortgages as market fluctuates
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Pension schemes are strong enough to handle market ups and downs, according to an industry body. The pound dipped to a new 14-month low on Monday, as UK government bonds, or gilts, have seen their yields—the barometer of market trust—soar to levels not spotted since 2008.
There has been speculation over potential impacts for pensions from the gilt market rout, as well as mortgages, with comparisons being drawn with the fallout from former prime minister Liz Truss’s 2022 mini-budget when the pound was sent crashing due to an acute sell-off in gilts.
Joe Dabrowski from the Pensions and Lifetime Savings Association (PLSA) said: "We are not experiencing the rapid and disorderly market conditions that caused the last gilts crisis. "As gilt yields rise or fall pension funds will typically adjust their collateral holdings. Given recent rises, and in keeping with guidance from regulators following the mini-budget crisis, schemes are required to hold increased buffers to withstand market volatility – taking these steps is the prudent thing to do.".
He also reassured that "Overall, DB (defined benefit) pension schemes are currently in significant funding surplus, and a robust position to deal with market fluctuations.". Some other parallels are also being drawn with the impacts of the mini-budget – which could be positive for people looking to buy an annuity, which guarantees an income in retirement.
As gilt values decline, yields climb, which in turn elevates annuity rates, explained Helen Morrissey, head of retirement analysis at Hargreaves Lansdown: "The turmoil in the bond markets has caused annuity incomes to soar, giving an extra boost to a market that has already enjoyed a stellar year.
