12 July 2012 last updated

Impaired annuity rates fall 1% after week of declining gilt yields

Impaired annuity providers have reduced their rates by 1% after the rapid fall in gilt yields as confidence in the Eurozone reaches a new low. After a week of declining gilt yields since the 15-year gilt yields reached a high of 2.31% on 3 July, impaired annuity rates have reduced by 1.0% from many providers. The 15-year gilt yields have reduced 21 basis points in the last nine days and as a rough guide this would result in a 2.1% decrease in annuity rates. The decrease in yields has neutralised the gains achieved in June and means that annuity rates are likely to fall further in July. For the latest updates see Annuity Rates Review. At the moment standard annuity rates have remained steady and have not reduced, however, smoker and impaired annuities have reduced with smoker rates lower by 0.3% up to 1.0%.

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Impaired annuity providers react

The leading providers Just Retirement and Liverpool victoria have reduced their rates and the impaired annuity providers have also set the form by reducing rates. In particular Partnership Assurance and MGM Advantage have reduced rates by 1.0%, Just Retirement by 0.5% and Aviva by 0.75%. Liverpool Victoria have resisted reducing their rates as they were more aggressive with their decreases in June.

For pensioners retiring today it is likely that up to 60% of them may qualify for some type of enhancement from either an enhanced or impaired annuity. An enhanced pension annuity would include lifestyle conditions such as high blood pressure, high Cholesterol or being overweight and impaired annuities would include more serious conditions such as diabetes, heart conditions and cancers. These annuities have reduced at a faster rate than standard annuity rates in 2012 but nevertheless are a very good way to achieve a higher income in retirement for those that qualify with improvements over existing providers of up to 40%.

No action from EU summit

The recent European summit has failed to provide any substantial action for the debt crisis resulting in a continued flow of investor funds out of peripheral Europe. The delay in ratifying the European Stability Mechanism (ESM), a device to provide failing European banks with direct finance rather than through sovereign countries, has been partly reflected in the falling equity markets. The euro continues to fall against the dollar and pound and further delays in in ratification will mean a move of investor funds to safe havens such as UK government bonds. The will push the price of gilts higher and the yield lower so it is likely that pension annuity rates are destined to reduce in the short term while the Eurozone delays ratifying the ESM.