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13 May 2013 last updated
Impaired annuity rates up to 4% higher as gilt yields rise

Providers have increase impaired annuity rates by up to 4% after gilt yields rise by 22 basis points this month following good US job data, no further stimulus from the Bank of England and rising equity markets benefiting those with medical conditions.

The leading providers Just Retirement, Partnership and Liverpool Victoria have reacted to rapidly improving gilt yields with better than expected rises in impaired annuity rates.

UK annuities are primarily based on the 15-year gilt yields and as a general rule a 22 basis point increase in yields will result in a 2.2% increase in annuity rates at some point. Providers may choose not to increase rates immediately although decreases are usually applied quickly.

The impaired providers are usually the first to change their rates and are constantly altering these for different medical conditions whereas standard annuities can remain stable for longer periods.

Impaired annuity rates up 4% higher
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Gilt yields recover to help boost impaired annuities

In the UK about 60% of people could benefit from enhancements due to medical conditions. For lifestyle conditions such as smoking, being overweight, high blood pressure and Cholesterol gains over the highest standard annuity could be up to 18%. For more severe conditions such as diabetes, heart conditions and cancer increases of 40% or more are possible.

The 15-year gilt yields reached a high of 2.76% in February followed by enhanced annuity rates only to collapse back to 2.15% earlier this month dragging down rates.

With gilt yields at 2.44% Just Retirement were the first to increase rates by up to 3% followed by Partnership with 4% increases for level annuities and 2% increases for esscalating rates. To remain competitive Liverpool Victoria have also followed with increases of 2.2% across the board.

For example, a person aged 64 that is a smoker, suffering from high blood pressure and high Cholesterol with a fund of £80,000 could purchase a single life, level annuity with an income of £5,766 pa and this will increase by £230 pa to £5,996 pa. The Office of National Statistics (ONS) estimates a male aged 64 will live for 18.6 years and this rise will improve his lifetime income by £4,278 while females with a longer life expectancy of 21.2 years generating £4,876.

Investors positive with economic developments

In the UK a number of factors have improved investor confidence starting with the manufacturing sector not contracting as much as the previous month and an improvement in the service sector purchasing managers' index (PMI) for services increased to 52.9 in April up from 52.4.

The Bank of England have also decised not to increase Quantitative easing from the current level of £375 billion which mean the price of gilts will not rise due to the BoE and investors may choose to more their funds elsewhere thereby increasing the yield. Better than expected US jobs data lifted investor confidence turning raising gilt yields by 12 basis points to 2.27% which reached a dangerous low for the year on 2 May of 2.15%.

Investors move funds to safe havens such as US Treasury notes, UK goverment bonds and gilts and German Bunds when there is uncertainty. With greater confidence funds are moved to investmetns producing higher returns and equities have increased this month with the FTSE-100 index up 202 points or 3% to 6,632 and the Dow Jones index up 251 points 1.6% to 15,091.

For people that remain invested when they retire the combination of rising equities and impaired annuity rates can make a significant difference to their income. Coupled with impaired health the increase over what their current providers are offering and what they could have recieved back in January can be substantial.

News related stories:
Enhanced annuity rates fall by 1% as Partnership reacts to gilt yields
Impaired annuities reduce 1.5% from leading providers on poor yields
Enhanced annuities providers decrease rates by 1.2% as gilt yields fall
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
Related internet links:
BBC - US stocks surge on strong job creation
Guardian - Dow Jones sets new high closing above 15,000
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