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9 November 2012 last updated
Impaired annuity rates have been reduced up to 2% as gilt yields fall

Impaired annuity rates have been reduced by providers after 15-year yields fall by 14 basis points already this month further reducing annuity income of hard pressed pensioners retiring now.

Leading impaired providers Just Retirement and Partnership have reduced their annuity rates by as much as 2% after a start to the month that has seem the 15-year gilt yields reduce by 14 basis points.

Annuity rates are based on gilt yields and as a rough guide a 14 basis point reduction in yields would result in a 1.4% fall in annuity rates. Providers have exceeded this expectation and this regular occurrence means that compared to gilt yields we would now expect annuity rates to increase.

The reason for this is the impending EU Gender Directive where unisex annuities will result in male rates falling by 3-5% and female rates rising by 2-4%.

Impaired annuity rates reduced
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Annuity rates lower than expected

Providers have been discounting annuities at a faster rate than gilt yields are falling and in normal times this would be countered by some providers increasing their rates to gain market share. However, as all providers are aware of the changes ahead with the unisex rates and a general increase in pensioners buying their pension annuity early it has given providers the opportunity to reduce rates and maintain reasonable business volumes.

For example over 3 months if annuity rates were correctly adjusted to gilt yields they should increase by 6.3% and over 6 months increase by 7.9%. For smokers and impaired annuities the figures would be 6.6% and 9.6% respectively. On this basis annuity rates are particularly poor value to pensioners retiring now although for men they are still likely to reduce further.

Impaired annuities currently offer less value

Impaired annuity rates are more complex as the providers can also adjust the the weighting for medical underwriting. Some medical conditions are becoming less competitive such as only having high blood pressure whereas earlier in the year some providers were very aggressive at targeting this market.

In general medical conditions are less competitive in the current downward cycle of annuity rates compared to earlier in the year with smaller margins offered across the board. Market conditions are likely to return to more normality after the EU Gender Directive is implemented from 21 december 2012.

News related stories:
Unisex annuity rates to reduce annuities for males and couples
Standard annuity rates now 1.5% lower income for pensioners
Smoker annuity rates decrease by 2% across the board
Retirement annuities reduced by 1.9% from leading provider
Impaired annuity rates reduce over 2% by providers
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