Our opinion (and we do not have a crystal ball) is that annuity rates will continue to fall. They have fallen in the last 15 years and we certainly do not believe that we are at the bottom of this trend.
The annuity rate will be altered by the return that insurance companies can obtain from relatively low risk investments. Typically these are Gilts (or loans to the government) and Corporate Bonds (loans to companies). This is driven by the markets.
Because the income must be paid for the rest of your life, the amounts paid will depend on mortality rates (how long we live). Because of developments in medical science and other factors, we are all living longer. This will push annuity rates down in the future (or at least until the overweight computer games generation of kids reach retirement?).
There are also items of legislation that will be introduced that are extremely likely to push annuity rates down. These are E.U. driven directives that will not allow sex discrimination in annuity rates (even though it is a fact that women generally live longer than men) and ‘Solvency 2’ will focus on the ‘capital adequacy’ a company must retain to guarantee your income. This will make it less profitable for the insurance companies.