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| 28 November 2012 last updated |
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| Buying annuities income could lower due to Spanish bank rescue |
Income when buying annuities could lower after a sudden 8 basis point fall in the 15-year gilt yields with annuity providers already primed for more decreases with the impending EU Gender Directive and Unisex rates.
As Spain announces a 37 billion euro rescue of it's bank in exchange for up to 10,000 job losses including the largest nationalised Bankia bank, investors seek safe havens with UK government bonds and gilts.
Annuity rates are based on 15-year gilt yields and the sudden fall from 2.31% to 2.23% could be enough for providers to reduce their rates. Although gilt yields are higher than the all time low of 2.02% reached in August the EU Gender Directive is driving down annuity rates.
Pensioners retiring in the next few months are flocking to buy their annuities now but it may already be too late as providers have been reducing annuities over the past few months.
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Spanish banks costing UK pensioner annuity income
The Eurozone will continue to have a significant influence for UK pensioners and their annuity income as fear from investors means they will always be looking to move their funds to the relative security of UK government gilts, driving up the price and reducing the yield. The Spanish bank rescue of Bankia, Catalunya Banc, Novagalicia and Banco de Valencia with funds from the Eurozone will require severe cuts with the loss of 10,000 jobs, closing of branches and the sale of assets.
Bankia will receive 17.9 billion euros in addition to the 23.5 billion euros already received earlier in the year. It will lose 6,000 jobs, close 1,100 branches representing 3% of all of Spain's network and require bondholders to take an immediate lose of 39% from their bonds to fund 10 billion euros of the required funding.
It is this type of threat that investors fear from the Eurozone and the uncertainty of when and where it will happen again that will mean gilt yields in the UK could suddenly fall. Pensioners retiring can expect continued volatility in the pension annuity market in the future although other threats such as Quantitative Easing where the Bank of England injects money to the economy by purchases gilts is less likely. The immediate risk could the the US fiscal cliff with spending cuts and new taxes in January if Congress cannot resolve the outstanding issues or delay the implementation.
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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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