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11 January 2013 last updated |
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Impaired annuity rates increase by 2.5% from Just Retirement |
Just Retirement have increased their impaired annuity rates following the rise in the 15-year gilt yields with single life rates increasing by up to 2.5% which will benefit pensioners retiring since the GU changes introduced by Unisex pricing.
Annuity rates follow the 15-year gilt yields and this month yields have increased by 26 basis points to 2.57%. This means annuities should increase by 2.6% although providers can take time to reflect increases.
Impaired annuities
decreased significantly at the end of December before the EU Gender Directive introduced Unisex rates and in some cases by up to 8% even though yields increased by 15 basis points.
The decreases were due to a number of reasons including males rates reducing due to gender neutral pricing and also high demand from pensioners to beat the deadline with the result that all provider annuities decreased to manage the volumes.
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Impaired annuity providers slow to improve rates
Just Retirement is the first provider to increase rates this year. The expected improvements for impaired annuities is 5.4% over one month and 7.9% when comparing gilt yields over three months after taking into account gender neutral pricing. This increase of 2.5% is a start to give pensioners better value for their money and there may be further increases in the first quarter.
As an example the decreases last month for a 69 year old male with a fund of £100,000 to buy an impaired annuity on a single life, level basis suffering from high blood pressure, Cholesterol, heart attack and angioplasty would receive an income of £7,960 pa after decreasing by £500 pa. The current improvements would increase this figure by £199 pa to £8,159 pa.
Gender neutral pricing
would have decreased pension annuity rates for males by approximately 3.5% assuming gilt yields remained the same during the period before December. In fact yields have increased by 55 basis points since August last year and pensioners can expect further increases as there appears to be sufficient margin available.
Pensioners with severe health issues such as diabetes, heart conditions or cancer could offer up to 40% more than the highest standard annuities with an impaired quote. If they suffer from lifestyle medical conditions
such as high blood pressure, Cholesterol, are a smoker or being overweight an enhanced annuity would pay up to 20% more than a conventional open market option annuity.
Equity markets up but economy contracted
The FTSE-100 index increased to 6,122 with the Dow Jones at 13,488 following the deal over the US fiscal cliff. These increases will help improve the pension fund values and therefore the annuity income for pensioners although since the mid December the markets are only up 3% compared to the decrease in impaired annuity rates of between 6-8%.
Markets are increasing even though the UK economy contracted in the last quarter by 0.3% and is heading for a tripple dip recession and means for 2012 the economy did not grow. With improving annuity rates and equity markets this would seem to be reasonable time to take benefits as equities may decrease in the future once more negative economic news unfolds. At the very least pensioners retiring soon should consider switching funds from equities to cast to preserve their gains and avoid losses just before they buy their annuities.
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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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