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1 October 2012 last updated |
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Standard annuity rates now 1.5% lower income for pensioners |
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Pensioner income is another 1.5% lower as leading standard annuity providers reduce rates again, only two weeks after a similar decrease.
Standard annuity provider Legal & General and Aviva have reduced their rates with some pensioners experiencing a decrease of 3.4% significantly reducing the income they can expect at retirement.
Standard annuity rates are primarily based on the 15-year gilt yields and since the beginning of August 2012 when yields reached an all time low of 2.02% they have increased to 2.19% a rise of 17 basis points. Would would mean pension annuities should increase by about 1.7% to match the yields.
Over this time the rates for a male aged 55 on a single life level basis have now decreased by 5.2% and across the board all annuity rates are acting contrary to expected direction and suggests providers are re-pricing their rates possibly in expectation of the Unisex Rates due to the EU Gender Directive.
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Providers in downward annuity rates cycle
The aggressive discounting of standard annuity rates could be due to providers anticipation of the EU Gender Directive being introduced on 21 December 2012 as they all compete not to offer the highest annuities at the detriment of pensioners.
As an example a male aged 55 with £100,000 could purchase a standard annuity in August 2012 with an income of £4,821 pa and by 20 September this has reduced by £255 pa to only £4,566 pa. According to the Office of National Statistics (ONS) a male aged 55 could expect to live for 26.0 years so over his lifetime he will have £6,630 less income from his pension fund.
For females the situation is even worse.
A female aged 55 with £100,000 could purchase a standard annuity income of £4,637 pa in August 2012 and now this has reduced by £246 pa to £4,391 pa, however, for a female aged 55 the ONS expect her to live for 29.1 years so over her lifetime she will have £7,156 less income from her pension fund.
The above is unexpected as female standard annuity rates are being reduced as aggressively
as male rates although it is expected that at some point female rates should increase slightly by about 2.4% with male rates decreasing by up to 4.7% for escalating annuities aged 70 although on average it is likely to be about 3.6%.
Pensioners can improve their income
The guaranteeed annuity can offer a level or escalating income at retirement for pensioners. This initial income could be improved by up to 30% using a with profits annuity or investment backed annuity if they are prepared to take more risk or have other pension income.
Alternatively an enhanced annuity could be purchased if there are lifestyle conditions such as high blood pressure, Cholesterol, are a smoker or are overweight. An impaired annuity can be considered if they suffer from poor health such as diabetes, heart conditions or cancer. Incomes are often 40% higher than the highest standard open market option annuities.
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Age |
Single |
Joint |
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55 |
£6,361 |
£5,898 |
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60 |
£6,842 |
£6,244 |
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65 |
£7,474 |
£6,843 |
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70 |
£8,405 |
£7,660 |
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£100,000 purchase, level rates, standard
Unisex rates and joint life basis |
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