Lock into annuities now

ANNUITY PAYOUTS SET TO FALL FOLLOWING EASING INTEREST RATE CYCLE

- SAIKAT NEOGI

AS INTEREST RATES fall, retirees planning to buy an immediate annuity should lock in at current rates to get higher guaranteed payouts for life. The annuity rates of life insurers are directly linked to the 10-year government bond, which has fallen to 6.28% now from 6.78% on January 1 this year.

Life insurers are revising the rates on their annuities as they find it difficult to meet the earlier returns. So, if one invests ₹20 lakh in an immediate annuity with return of purchase price, even a decline of 50 basis points in the rate of the annuity would reduce the yearly income by ₹10,000. On a 25-year-long retirement, this will be around ₹2.5 lakh.

Lock in at current rates Chetan Vasudeva, senior vice president, Business Development, Elephant.in, Alliance Insurance Brokers, says as immediate annuities are irrevocable, anchoring in a higher rate will shield one against future dips in interest rates. "This is especially significant in India because guaranteed income products appeal more to retirees than market-linked products," he says.