Pension annuity rates 'to fall 4pc this year' Further cuts are on the cards if a shift in the investment markets - predicted by research firm Capital Economics - plays out. Annuities are backed by UK government bonds, called gilts. The payout offered to customers is, therefore, largely determined by the prevailing rate of return (or yield) on these assets. According to Capital Economics, these returns will face "downward pressure" until January 2014. This is due to falling levels of inflation in the UK, it said. Capital Economics predicted 0.5 percentage points will be wiped off the return on ten-year government bonds. Such a reduction is likely to translate into a 4pc fall in annuity rates, past trends suggest. However, there are several caveats to this warning. If firms are desperate for new business, they could keep offering higher rates despite the extra costs. And economists' track records on predicting market movements is far from perfect, to say the least. However, it should serve as a wake-up call for savers considering taking their pension. It rarely pays to hold off an annuity purchase for a few months once you have decided that it's the best course of action. If rates fall heavily between now and December, they could take months or even years to recover. Savers who delay two years only to find rates are no better than today will have to live 41 years to recoup the costs, calculations suggest. Annuity firm MGM Advantage said that while customers get a slightly better rates as they get older, the extra fails to compensates for two years of income lost while waiting. The calculations assumed no investment growth, however. Furthermore, all savers have the option of turning down an annuity purchase and drawing an income while staying invested in the stock market during retirement. This is called income drawdown. If you have less than £20,000 secured income elsewhere, your annual withdrawals will be subject to a cap similar in value to the latest payout rates on annuities. Alan Higham, an annuity adviser at brokers Annuity Direct, said there are ways to ensure you are better off if you delay for two years. For example, you could go into income drawdown and take 6pc income each year. Should you also manage to achieve 5pc a year growth of your fund - which is not unrealistic - a £100,000 fund would fall only marginally to £98,000 after the withdrawals. Factor in a better annuity rate due to your increased age, and you could be in a better overall position. If you delay and develop an medical condition - or an existing condition worsens - you will also put yourself in a better position. Annuity providers pay up as much as double to customers who suffer serious illnesses. Even less obvious health issues, such as being a long-term smoker, can give you a 20pc boost. Always speak to a financial adviser or at the very least a annuities broker, who can shop around the market. If you are considering drawdown, an adviser is highly recommended. For the latest news on pensions: sign up to our weekly email