Annuities: Buy Now, or Wait for a Rate Rise? READERS' LIVES;Retirement Planning ... Paying Tax on Joint Investments ... Tracing Old Bank Accounts. Your Queries Answered

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AS a self-employed consultant I have dutifully been paying large amounts of money into a personal pension plan for the last 10 years. I am now coming up to 65 and thinking about partial or full retirement. But I am unsure what to do about buying an annuity with my pension fund. Should I postpone my retirement until rates have picked up?

GR, Norfolk

Pensions are a thorny issue. There are several big debates. These include the great pensions mis-selling scandal (with more chapters left to come), the Government's pensions review (so-called stakeholder pensions), and the fact that we need to provide for our own old age because the working population will shrink over the next decades. But the annuity problem, potentially as serious as the others, has largely been bypassed.

Annuity rates are linked to long-term interest rates. These, in turn, are linked to inflation (or, more precisely, expectations of inflation). While short-term interest rates have jumped several times in the last year, long-term rates have been falling steadily. Inflation looks set on a long-term, downward path, driven by the deflationary impact of European monetary union and the Asian economic malaise. And quite apart from low inflation, annuity rates are likely to fall as insurance companies revise (and increase) their estimates of how long we can expect to live.

So annuity rates may not pick up. Indeed, they could fall further. It's not an easy one to call. But there are great risks in getting your timing wrong. It is in the nature of pension annuities that your income is fixed at the time you buy (possibly with predetermined rises) for the rest of your life. You don't benefit from any future rises in rates (nor suffer from future falls). It is possible that your pension fund has grown in value over the past year to reflect the performance of the stock market, depending on where your money is invested. Any rise in value could partially compensate for falling annuity rates. You'll have more money to spend on an annuity. But if (as some expect) the stock market suffers a reversal, you could suffer a double whammy of shrinking pension fund assets and shrinking annuity rates. In practice, your particular pension fund performance may not have a close relationship with short-term stock market performance. If it does, it's generally wise to lock in any growth by switching your money to lower-risk, deposit-based investments in the run-up to retirement.

If annuity rates were to stay constant (and if insurance companies do not revise their life expectancy tables) you would get a bigger annuity if you delay buying it for several years. On the other hand, a larger annual income when you are older may not make up for the money you have lost in the meantime.

For some people (generally those with a pension fund worth at least pounds 100,000) it might be worth considering the option of drawing an income from the pension fund, but delaying using the bulk of the money to buy the annuity contract (you can put this off until you are 75). …