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28 January 2013 last updated |
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Impaired annuities up 3.5% for second time by Just Retirement |
Impaired annuity rates were significantly reduced last year and Just Retirement have increased their prices by 3.5% for the second time this month benefiting pensioners while other providers are slower to react since the changes to gender neutral pricing.
During December gender neutral pricing resulted in a large decrease in impaired annuities as providers found themselves with the highest demand for impaired annuities on record and were able to reduce rates even further.
In January the 15-year gilt yields have increased by 31 basis points and as annuity rates are based on this yield as a rough guide this would mean annuities should increase by 3.1%.
Coupled with the previous decreases and the impaired annuities from Just retirement are higher by about 6% which is catching up to the level expected although further increases are possible especially if gilt yields improve further.
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Impaired annuities and equity markets higher
Most people remain invested right up to the time they take their annuity
and if their fund tracks the FTSE-100 index has increased from 5,867 at the beginning of December to 6,294 today and was over 6,300 and represents the strongest start to a year since 1989 as well as being a four-and-a-half year high. The gain in equities in the last seven weeks has been 7.2% and helps to offset falls in annuity rates.
As an example a 69 year old male with a fund of £100,000 on a single life, level basis suffering from high blood pressure, Cholesterol, heart attack and angioplasty could buy an impaired annuity income of £7,960 pa after this decreased in December by £500 pa. The current improvements in annuities of 2.5% on 11 January and 3.5% today would increase this figure by £484 pa to £8,444 pa and if the fund is higher at £107,200 the income will be £9,051 pa.
Risks ahead for sudden fall in equities
Even though pensioners have benefited from gains in the equity markets there are risks while they are buying enhanced annuities if equities fall and the gains can be lost. This could happen as it can take several weeks to surrender pension funds and if the markets fall during this time a smaller fund would mean lower pension annuity income. Once an annuity is purchased it cannot be changed so the lower income would be for the lifetime of the annuitant.
There is a number of negative news building that could risk a correction in the markets such as the UK economy shrinking Gross Domestic Product (GDP) by 0.3% in the last quarter of 2012 as manufacturing slows and is 3.3% below the pre-crisis peak in 2008. This means it is more likely that the UK will experience a triple dip recession. The UK's AAA credit rating is at risk as the government is likely to miss its deficit target which will impact confidence.
To protect gains before buying impaired annuities individuals should convert their pension to a cash fund and avoid any sudden fall that could see 5-10% lower incomes which have to be accepted if there is no time to wait for a recovery.
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Age |
Single |
Joint |
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55 |
£6,132 |
£5,784 |
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60 |
£6,532 |
£6,234 |
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65 |
£7,247 |
£6,808 |
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70 |
£8,170 |
£7,616 |
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£100,000 purchase, level rates, standard
Unisex rates and joint life basis |
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