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7 December 2012 last updated
Pension annuity income could be hit by triple dip recession

UK manufacturing output has reduced significantly and could mean a triple dip recession which would impact on market confidence reducing pension fund values and pension annuity income for pensioners.

With manufacturing output lower in October by 1.3% according to the Office of National Statistics (ONS) and 2% lower than this time last year, the UK will struggle to recover and could return to recession.

This could impact on the equity markets if company earnings and expectations for profits reduce. Many pensioners remain invested in equities up to the point they retire and any sudden fall in equities would reduce the value of their pension funds and the pension annuity they can buy.

Before retiring pensioners should convert their fund to a cash fund to protect it from volatility in the market as any decrease in value may take time to recover, time which many pensioners do not have when they need an income.

Recession would lower annuity income
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High equity markets boost pensioner funds

The FTSE-100 index has recovered recently and is at 5,914. It reached a low of 4,944 in October 2011 and is 19.6% higher today which will help to offset falling annuity rates.

For example, in October 2011 a male aged 65 with £100,000 could purchase an income of £6,093 pa, however in December 2012 annuities have reduced by 8.1%. Taking into account the rise in equities his fund if it tracked the FTSE-100 index would now be worth £119,600 and could provide an annuity of £6,690 pa or an increase of £597 pa or 9.7%.

This gain could be quickly eroded if markets fall due to economic expectations
in the UK, US and the Eurozone so protecting the gains by transferring to a cash fund before buying an annuity would ensure the annuity income does not fall due to this uncertainty.

Recession also a threat in Germany

In Germany the Bundesbank has reduced growth prospects to 0.4% in 2013 down from 1.6% and like the UK their manufacturing output has reduced in October but by a greater amount of 2.6% and is now 3.6% lower than a year ago. For Germany this has been due in part to other Eurozone countries such as Spain and Italy being in recession for over a year with weak demand for German goods and uncertainty has hit domestic confidence to spend.

Markets have managed to ignore the current negative economic data and maintain a relatively high equity value although there are risks for pensioners to be aware of when buying their annuities in 2013.

News related stories:
Buying annuity income boost from UK manufacturing data
Pension annuity income struggles to gain as UK manufacturing slows
Annuity income at retirement down with weakening global economies
Annuity income future uncertain with mixed economic data results
Related internet links:
BBC - UK manufacturing output falls
Guardian - Triple dip recession
Telegraph - Germany growth forecast cut
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