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| Annuity Rates Daily Updates for April 2012 |
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Annuity rates updates for April 2012 shows how your pension income can change by external factors such as equity markets, world and European news changing gilt yields, provider pricing decisions and annuity rates.
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Tues 17th Apr 2012
Pensioners see retirement funds recover from buoyant equity markets
23:10: Equity markets in the UK, Europe and US have seen some strong gains after significant falls earlier in April with uncertainty over the Eurozone. The FTSE-100 index was up 100 points at 5,766, the Dow Jones index up 194 to 13,115 and European markets were higher by between 0.7% and 2.7%. Initially the FTSE-100 index increased due to better than demand for Spanish 10-year bonds even though yields increased which is usually a sign of higher risk for investors. This was following by positive US housing start data which helped to increase equity markets in the US and also the UK.
These increases will be a relief to pensioners still invested in equities with the intention of taking their benefits and purchase annuities. The FTSE-100 index had reduced from 5,875 to 5,596 or 4.7% during April and this decrease means pensioners with exposure to equities would see their income reduce by this amount. For example, a male aged with a fund of £100,000 could purchase a single life annuity with no guaranteed period and on a level basis and receive an income of £5,611 pa but 8 days later this would reduce to £5,347 pa or a fall of £264 pa. Over his expected lifetime of 17.4 years the total income lost would be £4,646 which is significant and as a result of global events creating market fear, in this case Spain's debt problems. Where equity markets are high to avoid volatility pensioners should consider moving their pension fund to cash.
The International Monetary Fund (IMF) has said that the economic recovery is fragile and there is a risk that the debt crisis could return sending the global economy back into a global recession. In particular if Greece was to leave the euro currency or there was an uncontrolled default of debt this could see the financial crisis returning and too much austerity could also do damage. This would result in investors moving funds to safer havens such as government bonds and gilts increasing the price and reducing yields with the outcome being lower annuity rates for people retiring. However, today gilt yields have moved upwards with the 15-year gilt yield up 6 basis points to 2.64%.
The Consumer Price Index (CPI) a measure of inflation has stopped falling with a small increase from 3.4% to 3.5% according to the Office for National Statistics (ONS) which would suggest the Bank of England may not hit it's target of 2.0% this year. The Retail Prices Index (RPI) also increased from 3.6% to 3.7%. This means it is very unlikely that the Bank of England will introduce Quantitative Easing (QE) as this would increase inflation so pensioners will benefit as QE depresses gilt yields and therefore annuity rates.
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Fri 13th Apr 2012
Spain's debt crisis will mean greater volatility and risks for pension annuity income
22:52: Spain's stock market fell 3.6% to reach a three year low for the year due to investor fears that Spain will be the next European country to need a bailout as the result of the Eurozone debt crisis. As seen on 10 April 15-year gilt yields reduced significantly by 16 basis points as confidence suddenly eroded about the global economy and the Eurozone, in particular Spain. If the crisis in Spain develops it could mean pressure on annuity rates for pensioners retiring during the rest of this year and this means people retiring should be aware of this risk which could mean more volatility for annuities and uncertainty for pensioners income.
The reason for the fear over Spain is that last month the European Central Bank (ECB) loans to banks were taken up primarily by Spanish banks. Their borrowings for February were 152 billion euros and for march this increased to 228 billion or 28% of all loans issued by the ECB. A further risk is that the Spanish banks are using the loans for day-to-day operations whereas most other European banks placed the loans on deposit with the ECB which indicates the stress in the Spanish banking system which will continue as the loans need to be repaid in three years time. Spain's 10-year bonds rose to 5.9% although the ECB assured the market that there were no plans for a bailout for Spain.
First quarter gross domestic product (GDP) figures for UK are out at the end of April and analysts are expecting a contraction which would indicate a technical as GDP contracted by 0.3% in the fourth quarter of 2011. Adding to the negative news was that weaker economic date from China shows grow has reduced to the slowest rate in the last three years. Markets were negative based on the the above and the FTSE-100 index has reduced by 58 points to 5,652, Europe was down by between 0.5% and 2.5% and the Dow Jones down 137 points at 12,849.
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Wed 11th Apr 2012
Eurozone debt crisis could hit pensioner income
22:47: The debt crisis in the Eurozone and in particular Spain and Italy could help undermine financial stability with a lack of safe assets for investors resulting in greater demand for UK gilts and lower yields and annuity rates. As annuity rates are based on the 15-year gilt yields this would lower annuities over the next four years.
The International Monetary Fund (IMF) has said that as the number of safe assets reduces it could remove $9 trillion from previously safe assets by 2016. As credit agencies remove AAA rated status investors re-direct funds to safe assets like government bonds and gilts including the US and UK.
After yesterdays significant falls, equity and bond markets have recovered slightly with the FTSE-100 index up 39 points at 5,635. The Dow Jones index increased 89 points ending at 12,805 and Europe increased by about 0.75%. Gilt yields were also up slightly with the 15-year gilt yields increasing by 3 basis points at 2.58%. This month is likely to continue to be volatile as markets and investors absorb the implications of a positive first quarter for 2012 against mixed global economic news from the US and growth slowing in China with evidence showing the risk of the debt crisis spreading to Spain and Italy.
Pensioners retiring should be aware of this volatility as it will increase the risk of their funds decreasing if they remain invested in equities and a possible drop in annuity rates while they transfer their pension using an open market option.
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Tues 10th Apr 2012
Annuity rates set to fall with decreasing gilt yields
21:10: Standard annuity rates are set to fall by 0.8% and impaired annuities by up to 1.5% after a significant decrease in gilt yields. The 15-year gilt yields decreased by 16 basis points turning our 'what next for annuities' table red for the first time for the last couple of months. As a general guide a 16 basis point reduction in yields would mean a 1.6% fall in pension annuity rates at some time during the month.
As standard annuity rates were lower than expected the decrease is not as great as this although impaired annuity rates are likely to match the reduction in the next few days as these providers such as Just Retirement, Partnership and Liverpool Victoria are tracking the yields very closely. This means all the gains in the yields over the past month has now disappeared and are only slightly above the low for the year achieved in January. This will represent a risk to pensioners retiring now as it may take a month for the funds to transfer from one provider to another and annuity rates could easily fall during this time. Looking at rates over a longer time period of three months the change in standard rates are about equal to the change in gilt yields so if the standard annuity providers are working over this time frame gilt yields would need to reduce further before rates change. See Annuity Rates 2012 for the latest updates.
Markets decreased around the world with the FTSE-100 index down 128 points to 5,596 the lowest level since January, US index Dow Jones down 213 to 12,716 and European markets 1.5% and 3.0% on fears for the global economy and poor US jobs figures issued last Friday. In the US the expectation was for 200,000 new jobs created when the actual figure was 120,000 and in Eurozone debt problems and in particular Spain saw the cost of it's bonds increase to a new four month high. With this uncertainty investors are move funds into safe havens such as German and UK government bonds pushing up the price and lowering yields. This is bad news for pensioners still invested in equities as the FTSE-100 index has reduced by 4.7% in the last week with the prospect of lower annuities in the next few weeks. In most cases pensioners retiring will remain in equities until the annuity is purchased and the combination of lower equities and annuity rates may result in a significant reduction in the expected pension income. It is likely that April will remain volatile with greater risks for pensioners and their pension.
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Wed 4th Apr 2012
Pensioners dealt a blow as equities fall worldwide
20:22: Pensioners invested in equities and about to retire were dealt a blow from the fickle markets as they fall today based on fear over the US and European economies with the FTSE-100 index reducing 2.3% or 134 points to end at 5,704. For pensioners invested in equities this means their funds will also have reduced by as much as 2.3% with a focused equity based fund and so the income they can purchase with an annuity will also be reduced, although standard annuity rates have not reduced. For a male aged 65 with a fund of £100,000 aged they could have expected an income of £6,112 pa and this has reduced by £140 pa to £5,971 pa in a single day. This illustrates the risks people are taking by not converting to a cash fund before they take their pension annuity.
Other markets were also exposed to decreases with the Dow Jones down 124 points at 13,074, the S&P 500 index down over 1.6% and Europe down between 2% and 3%. For the US the issue was the Federal Reserve discounting the possibility of another session of Quantitative Easing (QE) as the US economic indicators did not warrant this action. QE would involve the Federal Reserve injecting money into the economy by buying government bonds which also risks higher inflation. In Europe the Spanish government had difficulty selling their 10 year bonds and saw the price rise by 0.25% to 5.7% yield. Another survey has shown that the eurozone service sector output has declined and unemployment is at a record 10.8% across the eurozone countries.
Despite the general bad news affecting the equity markets gilt yields have increased with the 15-year gilt yields increasing 4 basis points at 2.75%. This will be due to the lack of support from the Federal Reserve for another round of QE resulting in lower bond and gilt prices and higher yields although not the large reaction experienced last month that saw yields increase by 37 basis points in a single week. Annuity rates remain the same as providers watch to see the direction of gilt yields this month.
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Mon 2nd Apr 2012
Equities boosted by strong UK economic news good for pensions
23:47: UK equities were strong today with the FTSE-100 rising 106 points to close at 5,875 based on good economic news for UK manufacturing sector. This improvement is positive news for pensioners retiring where their funds remain in equities as annuity rates are based on fund sizes so the larger the fund the higher the annuity and income received. May people retiring never convert their funds to cash before purchasing annuities leaving them open to a sudden drop in the fund value while the transfer is in progress. This often results in a lower income as the annuity is based on the actual funds received. As long as the funds received are within 10% of the original quote and within the quote guaranteed period the providers will honor the rate applied. If equities increase pensioners can find themselves with more income than expected although there is always the risk of a loss by not converting to cash before the transfer.
The purchasing managers’ index (PMI) for manufacturing increased from 51.5 in February to 52.1 in March and any figure over 50 indicates growth. This supports the prediction from the Office for Budget Responsibility (OBR) that predicted the UK economy to growth by 0.8% this year in contrast to the Organisation for Economic Co-operation and Development (OECD) that predicts output declining by 0.4%. Growth would be positive news for people retiring as investors would be more committed to equities rather than UK government bonds and gilts. As annuity rates are based mainly on the 15-year gilt yields as investors move from the safety of gilts to equities the price of gilts falls and yields increase. This would mean a double gain for pensioners invested in equities with rising markets and annuities.
In contrast the Eurozone is facing a double dip recession with unemployment at 10.8% or 17 million the highest level since 1997 and also a reduction in orders and exports for the largest economies France and Germany. The PMI manufacturing index for Europe was under 50 for the 8 month in a row and the downturn would mean that the UK could be at risk of stalling growth later in the year.
The 15-year gilt yields increased today up 3 basis points to 2.75% although there was no change in standard annuity rates. Some impaired annuity providers such as Partnership have seen changes in their rates with some increasing for certain medical conditions and others decreasing as underwriters adjust their rates.
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Age |
Males |
Females |
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55 |
£5,067 |
£4,854 |
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60 |
£5,493 |
£5,215 |
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65 |
£6,112 |
£5,749 |
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70 |
£6,930 |
£6,533 |
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| £100,000 purchase, level rates, standard single life |
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