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4 February 2013 last updated
Impaired annuity rates up 3% as providers race to match rising market

Impaired annuity rates were increased by Just Retirement last month and now followed by others increasing annuity rates by up to 3% to close the gap as the annuities market becomes more competitive.

Liverpool Victoria have increased their rates by between 1% and 3% with MGM Advantage increasing impaired annuity rates by 2.3% as the gap between them and the leading provider Just Retirement grows.

So far this year Just Retirement has increased their rates by almost 6% realising that the significant falls in annuity rates due to the EU Gender Directive and introducing Unisex annuities as over done.

There has also been some movement from the standard annuities with leading provider Legal & General increasing their rates by up to 1% although even taking into account gender neutral pricing it is expected the rates could increase by 3.36% during the month.

Impaired annuity rates 3% up
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Smoker and impaired annuities gain the most

Compared to the standard annuity for healthy people, lifestyle medical conditions such as high blood pressure, Cholesterol, smoking or being overweight could pay 18% more income from an enhanced annuity and for more severe medical conditions such as diabetes, heart conditions or cancer an income of 40%or more could be paid from an impaired annuity.

The highest increases are from Liverpool Victoria and where they are the market leader, impaired annuity rates have increased by 3%. As an example, a female aged 64 suffering from diabetes and is also a smoker with a fund of 100,000 could purchase an annuity on a single life, level basis for £6,276 pa and this will ncrease by £188 pa to £6,464 pa.

Both enhanced and impaired annuities are increasing from the lowest annuity rates level reached at the end of last year. The gender neutral pricing resulted in rates falling by as much as 8% from som providers as volumes of business exceeded expectations and providers could maintain high business levels by offering lower annuities, at the expense of pensioners rushing to beat the deadline.

Standard annuity rates lower than expected

UK annuity rates are based on the 15-year gilt yields and since reaching a low at the end of August of 2.07%, yields increased by 24 basis points to 2.31% by the end of December. As a rough guide a this would translate to a 2.4% increase in pension annuity rates.

It was expected that male rates would decrease due to the EU Gender Directive by 3.6% for a male aged 55 and yet the actual decrease over this time period was 7.8%. Taking into account the rise in gilt yields the actual excess decrease after gender neutral pricing was 6.6% for a male aged 55. Providers will not increase annuites very quickly and may be waiting to see if gilt yields decrease from their current levels of 2.60%.

News related stories:
Enhanced annuity provider Liverpool Victoria with 2.6% higher rates
Impaired annuity rates higher by 1.6% from Partnership
UK annuity rates rise 1.5% from Legal & General as gilt yields fall
Enhanced annuities increase by 1.4% with more competition
Enhanced annuity rates up 1.3% by Just Retirement
Impaired annuity provider Partnership with 2% increase in rates
Impaired annuities up 3.5% for second time by Just Retirement
Unisex annuity rates for females the winners and losers
Impaired annuity rates increase by 2.5% from Just Retirement
Impaired annuity rates decreased 8% by providers to record lows
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  Age Single Joint  
  55 £4,273 £4,019  
  60 £4,695 £4,418  
  65 £5,361 £4,913  
  70 £6,172 £5,708  
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Unisex rates and joint life basis
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