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| 1 February 2013 last updated |
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| Retirement annuities income increases with US equity market gains |
Equity markets surge as the Dow Jones index reaches a five-year high followed by markets in Europe and the FTSE-100 to the advantage of pensioners realising the gains with higher retirement annuities income.
The Dow Jones index increased by 149 points to end at 14,009 after the US economy reported creating 127,000 jobs in November and December and a further 157,000 in January. The lat time the index was higher than this level was in October 2007.
Further positive news was announced with the US purchasing manager index (PMI) which rose from 54.0 in December to 55.8 in January where a figure above 50 indicates growth and a figure below contraction.
Most people retiring remain invested until buying their retirement annuities and the recent gains in equities will increase their annuity income
which will counter the significant falls in annuity rates. |
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Pension funds 28% higher boosts annuity income
The FTSE-100 index has reached a high for the past four and a half years up 70 points at 6,347 and since October 2011 when the index was at a low point of 4,944 it has increased by 1,403 points or 28.3%. For people retiring now with investments that track the FTSE-100 index this has countered the fall in UK annuity rates over this period of about 11.8%.
As an example a 65 year old male retiring in October 2011 with a fund of £100,000 could have received a pension annuity of £6,093 pa on a single life, level
basis. Although annuity rates have decreased the rise in the pension fund value to £128,300 means the income today will be £6,893 pa. The increase of £800 pa will be paid for the individuals lifetime and according to the Office of National Statistics (ONS) this will be 17.8 years or a gain of £14,240.
For a female the difference is even greater as the gender neutral pricing has introduced Unisex annuity rates. On the same basis as above, in October 2011 a 65 year old female could have received an annuity of £5,712 pa and with a fund of £128,300 the annuity today would be £6,893 pa. Her life expectancy is greater and the ONS determine she could live for 20.4 year so the gain would be £24,092 more income over her lifetime.
Equity growth based on mixed signals
While the US, Europe and UK equity markets have experienced a strong start to the year only a few days ago the official data shows the US economy contracted by 0.1% in the fouth quarter with unemployment higher at 7.9% and a further $100 billion of government spending cuts due in March. The fundamentals in Europe are also poor with Gross Domestic Product (GDP) at zero in most countries and increasing unemployment.
Even though countries are struggling, large UK companies since the financial crisis have reduced their debts, have seen workforce wages decline in real terms and have earnings generated internationally from other expanding economies. Much of the UK pension funds valued at £3 trillion with other pension globally worth £25 trillion and £30 trillion in soverign wealth funds are still in safe havens such as government bonds and gilts to equities although some is moving to equities as earnings that look attractive to investors.
For people with equity gains they should consider converting to cash funds before purchasing retirement annuities to protect their funds from any sudden decreases in the markets.
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Age |
Single |
Joint |
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55 |
£6,361 |
£5,898 |
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60 |
£6,842 |
£6,244 |
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65 |
£7,474 |
£6,843 |
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70 |
£8,405 |
£7,660 |
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£100,000 purchase, level rates, standard
Unisex rates and joint life basis |
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