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3 July 2012 last updated
Retirement annuities income benefit from higher European markets

European markets have increased with the expectation of lower interest rates from the ECB will help UK pensioners gain extra income when they purchase their annuities.

Equity markets in Europe have continued their increase for the fifth day in a row with gains in Spain of 1.34%, France up 0.96% and Germany up 1.26%.

Yesterday the gains were between 0.31% and 1.75% and on Friday the gains were up to 6.55% following the announcement of the European bank bailout deal.

For pensioners at retirement with funds remaining invested in equities in a diversified portfolio, they are likely to have a portion in European funds. The

recent gains will mean their fund will recover some of the losses experienced last month and result in a higher annuities income when they purchase their annuity assuming gilt yields do not decrease and threaten current annuity rates.

 
Pensioner income higher with markets up
 
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Interest rates and QE good for markets

Gilt yields also increased today with the 15-year gilt yield increasing 7 basis points to 2.31%. These gains mean that in the short term standard annuity rates could increase by 3.0%, smoker annuities by 4.1% and impaired annuities by 3.9%. If providers take a medium term view it is likely that rates will not increase as much and standard rates may rise by 0.5% with smoker and impaired rates rising by 1.7%.

Markets have been positive as they are expecting the European Central Bank (ECB) to announce a 0.25% reduction in interest rates later this week and the Bank of England is expected to increase Quantitative Easing (QE) by another £50 billion as well as further monetary easing from China and the United States. The International Monetary fund (IMF) has suggested the US economic recovery is weak and at risk from the problems in the Eurozone.

In the UK FTSE-100 index increased by 47 points to 5,688 despite poor data from the purchasing manager index (PMI) that showed this had decreased in June to 48.2 down from 54.4 in May. A figure of 50 or more would indicate expansion and below is contraction. The Dow Jones index was also higher by 72 points closing at 12,943. For July the combination of improving equity markets and possible increase in annuity rates would be a bonus to pensioners retiring as both equities and annuity rates rising together will improve their pension income, however, this opportunity may not last long.

News related stories:
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Related internet links:
BBC - IMF states US economic recovery is tepid
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