Anna Sofat, director of Addidi Wealth, says:
“The Treasury Select Committee has done a good job in highlighting the adverse effects of quantitative easing on savings rates and pensioners’ annuity rates.
“For too long, savers and pensioners have been the principal victims of the government’s monetary policy of keeping interest rates close to zero and allowing inflation to inflate away the national debt.
“But as the Bank of England has said that it intends to keep interest rates low until 2014, savers and pensioners need to make the best of a bad situation, by shopping around for the best rates and seeking advice from an IFA.
“For savers, this will usually mean having to tie up money for several years to get a better rate, but you need instant access, there are online accounts paying around 3% gross. Also be sure to maximize this year’s £5,640 cash ISA allowance.
“For pensioners, it is essential to take advice about how to manage your pension pot, as the last thing you want to do is to lock your entire fund into a poor annuity rate today – a decision you might regret in five years’ time, especially when there are other options.
“If you can defer buying an annuity for three to five years, annuity rates might have risen and you might have a health condition by then which could make you eligible for an impaired life annuity.
Alternatively, you could take out a flexible or investment linked annuity which offers more flexibility and the potential for investment growth. Another option is limited period annuities which last for five or 10 years, after which you can re-assess your options.
“For those with larger pension pots, capped or flexible drawdown offer the most flexibility, albeit with greater risk. Some pensioners may wish to do a mix of all these options in order to have some guaranteed income from standard annuities, while maintaining the potential for growth and greater flexibility from investment linked annuities and drawdown plans.
“But whatever you do, it is essential to take advice. Buying an annuity is a decision for life, so if you make a poor choice, you won’t be able to change it afterwards. Also you may need a range of products which dovetail with your individual needs, tax status and other sources of income.”
