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4 April 2012 last updated
Retirement annuities income dealt a blow as equities fall worldwide

Income for people purchasing retirement annuities decreased as equity markets fall after the Federal Reserve discounted more stimulus.

Pensioners invested in equities and about to retire were dealt a blow from the fickle markets as they fall today based on fear over the US and European economies with the FTSE-100 index reducing 2.3% or 134 points to end at 5,704.

For pensioners invested in equities this means their funds will also have reduced by as much as 2.3% with a focused equity based fund and so the income they can purchase with a retirement annuity will also be reduced, although standard annuity rates have not reduced.

For a male aged 65 with a fund of £100,000 aged they could have expected an income of £6,112 pa and this has reduced by £140 pa to £5,971 pa in a single day. This illustrates the risks people are taking by not converting to a cash fund before they take their pension annuity.

Annuity income lower with equity fall
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Pension funds decrease with fickle markets

Other markets were also exposed to decreases with the Dow Jones down 124 points at 13,074, the S&P 500 index down over 1.6% and Europe down between 2% and 3%. For the US the issue was the Federal Reserve discounting the possibility of another session of Quantitative Easing (QE) as the US economic indicators did not warrant this action. QE would involve the Federal Reserve injecting money into the economy by buying government bonds which also risks higher inflation.

In Europe the Spanish government had difficulty selling their 10 year bonds and saw the price rise by 0.25% to 5.7% yield. Another survey has shown that the eurozone service sector output has declined and unemployment is at a record 10.8% across the eurozone countries.

Despite the general bad news affecting the equity markets gilt yields have increased with the 15-year gilt yields increasing 4 basis points at 2.75%. This will be due to the lack of support from the Federal Reserve for another round of QE resulting in lower bond and gilt prices and higher yields although not the large reaction experienced last month that saw yields increase by 37 basis points in a single week. Retirement annuity rates remain the same as providers watch to see the direction of gilt yields this month.

As an alternative to the open market option conventional retirement annuity pensioners could receive up to 30% higher initial incomes using an investment backed or with profits annuity. Pensioners would need to accept the slightly higher risk and ideally have a final salary pension or more than one personal pension fund.

Higher incomes could be offered through an enhanced annuity if pensioners suffer from lifestyle medical conditions such as high blood pressure, Cholesterol, are a smoker or are overweight. For more more serious health conditions such as diabetes, heart conditions or cancer an impaired annuity would offer incomes 40% higher.

News related stories:
UK annuity income to benefit from buoyant equity markets
Annuities income and pension fund up as Wall Street hits four year high
Best annuity income threat to pensioners as equities fall
Annuity income at risk as gilt yields and markets fall sharply
UK annuity rates fall as Eurozone fear spreads to markets and gilts
Related internet links:
Guardian - Eurozone fears drag down markets
BBC - Markets down over US and Europe economy fears
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