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8 February 2013 last updated
Impaired annuity provider Partnership with 2% increase in rates

Partnership has been forced to increase impaired annuity rates by 1% and smoker annuities by 2% to catch up with recent increases from competitors as the market returns to competition after large increases in gilt yields.

The enhanced annuity market is beginning to reach to large increases in the 15-year gilt yields which have increased by 32 basis points from 2.31% to 2.63% today.

Annuity rates are based on the 15-year gilt yields and as a rough guide a 32 basis point rise in yields would mean annuities would mean an increase of 3.2%.

However, as a result of the EU Gender Directive introducing unisex rates enhanced annuities reduced much further than expected.

Providers experienced excess demand and could reduce rates with little effect to the high business levels as people retiring rushed to buy their annuities before the deadline.

Impaired annuity 2% increase
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Enhanced annuities lower by up to 11.9% last year

Since gilt yields reached a low ending August last year at 2.07% they reached 2.31% by the end of the year while impaired annuity rates continued to decrease by up to 11.9% for males aged 55.

Before gender neutral pricing was introduced the difference between male and female rates for those aged 55 was 9.0% suggesting that male rates would reduce by about 5.5% and female rates increase by about 3.5%.

This means male rates for those aged 55 fell 6.4% lower than the adjustment for gender neutral pricing and at the same time gilt yields increased 24 basis points so annuities were 8.8% lower from where they should have been. So far this year yields have moved further by another 32 basis points with enhanced annuities 12.0% lower until the increases from Just Retirement of 6.0% with possible future gains of 6.0%.

Still room for impaired annuity increases

For males aged 65 rates fell only 4.3%, however, before gender neutral pricing there was no difference between male and female rates so with gilt yields higher by 24 basis points annuities were 6.7% lower. Add the 32 basis points for this year and impaired annuities are 9.9% lower so even with increases of 6.0% from Just Retirement, the possible future gains are 3.9%.

Providers are also changing their underwriting terms for different medical conditions and the enhancement for common conditions such as high blood pressure and Cholesterol have reduced. Providers will make these changes based on mortality estimates and expected profitability focusing on certain markets where they know they can achieve a better long term return.

People retiring are likely to see higher impaired annuity rates in the next month assuming the 15-year gilt yields remain at current levels or improve as there is still room for annuities to increase.

News related stories:
Enhanced annuity provider Liverpool Victoria with 2.6% higher rates
Impaired annuity rates higher by 1.6% from Partnership
Enhanced annuities increase by 1.4% with more competition
Enhanced annuity rates up 1.3% by Just Retirement
Impaired annuity rates up 3% as providers race to match rising market
Impaired annuities up 3.5% for second time by Just Retirement
Impaired annuity rates increase by 2.5% from Just Retirement
Annuity rates December 2012 unisex annuities introduced
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