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22 July 2013 last updated
Impaired annuity rates down 1.3% from provider Liverpool Victoria

Impaired annuity rates have reduced by 1.3% from Liverpool Victoria after the 15-year gilt yields reached a high last month before falling sharply.

The 15-year gilt yields reached a high of 3.04% earlier in the month after US data showed that 195,000 jobs were created indicating the economy is improving. Markets reacted by expecting the US stimulus package would end sending bond and gilt yields higher.

Impaired annuity rates are based mainly on the 15-year gilt yields and any change will be reflected in the rates offered by the providers. Yields are 19 basis points lower since the recent high resulting in lower rates especially from impaired providers that are very sensitive to changes.

The fall in yields has occurred as the US Federal Reserve has explained in more detail how their plan to taper the stimulus programme will proceed. This has given investors more confidence that the stimulus will not stop immediately.

Impaired rates down from Liverpool Victoria
  Liverpool Victoria reduces their impaired annuity rates as gilt yields reduce by 19 basis points
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US stimulus may keep rates from increasing

The US Federal Reserve announced the end of their $85 billion per month stimulus package known as Quantitative Easing (QE). The idea was to reduce this by the end of this year and stop by July 2014.

Although the initial reaction of lower equity and bond markets deflated the bubble developing markets remained volatile. Ben Bernanke later had to revealed more detail including the time when the stimulus would start to be reduced. There was no specific date mentioned, however, action would not be taken until unemployment reached levels in 2008 or less than 6.5%. Currently unemployment in the US is at 7.6% and likely to reach the target by the end of 2014.

Volatility has now subsided as investors are confident about how the future will unfold according to the US Federal Reserve. This has implications for annuity rates which can be expected to remain at current levels if the 15-year gilt yields stay at 2.85% which could extend to the July 2014 if US unemployment continues to fall.

Impaired annuities offer reasonable value

Even though impaired rates are lower this month, with the gains this year they remain significantly better after reaching an all time low in January.

For example, by the end of last month enhanced annuities were up 9.1% and for a person aged 65 with a fund of £100,000 an annuity on a single life, level basis would provide £6,460 pa and now this has increased by £635 pa to £7,095 pa.

Impaired annuities can offer much better value than standard rates as people with medical conditions such as high blood pressure and Cholesterol, are smokers or are overweight could receive 18% more than the highest standard annuity. For people with more serious medical conditions such as diabetes, heart conditions or cancers an impaired annuity could offer up to 40% more than the highest standard rates.

Assuming gilt yields remain at current levels until the US Federal Reserve actually start to reduce the stimulus which could be six to twelve months time, impaired annuities offer reasonable value in the short term. Delaying purchasing an annuity comes at a cost as a one year delay could take 10-12 years to recover the lost income.

News related stories:
Enhanced annuities up 7.8% and now at risk of falls in medium term
Impaired annuity rates up 2.4% higher from Liverpool Victoria
Impaired annuity rates up to 4% higher as gilt yields rise
Enhanced annuity rates fall by 1% as Partnership reacts to gilt yields
Impaired annuities reduce 1.5% from leading providers on poor yields
Related internet links:
BBC - Federal Reserve aims to reassure markets
Guardian - US jobs boom fear Fed may stop stimulus
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