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17 October 2012 last updated
Annuities could increase as gilt yields up on Greece bailout deal

The 15-year gilt yields have increased 20 basis points in the last few days which could benefit annuities as hope grows for Greece to receive 31 billion euros in the latest bailout deal.

With the expectation yesterday that Spain will apply to the European Central Bank (ECB) for a bailout and Greece today agreeing the core austerity measures to receive the 31 billion bailout investors have a higher confidence of stability and have moved their funds from UK government bonds and gilts to the more attractive European bonds.

Annuity rates are based on the 15-year gilt yields and as these increase it means there are prospects for annuities to increase.

Even though yields have increased annuity providers have been decreasing rates and this could be due to the EU Gender Directive to be introduced on 21 December 2012 which will see male annuity rates fall.

 
Annuities could increase on Greece deal
 
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Annuity rates 2% increase may not happen

As a general rule if gilt yields increase by 20 basis points annuities would be expected to increase by 2.0% and yet providers may ignore this and reduced rates instead.

The 15-year gilt yields reached an all time low of 2.02% on 2 August 2012 and since then have increased to 2.38% today. Although gilt yields have increased by 36 basis points pension annuity rates have decreased. For example our benchmark example for a male aged 65 with a fund of £100,000 provided an income of £5,802 pa back in August and has decreased £138 pa or 2.3%.

It is expected that Unisex rates will result in male annuities reducing by 3.6% for level rates and up to 7.9% for escalating rates with annuities for females increasing by by up to 3.1%.

With the Unisex rates to be introduced as a result of the EU Gender Directive in December providers are reluctant to follow the usual trend which will place them in a strong position later in the year, albeit at the expense of pensioners retiring now and buying their annuities at lower rates than expected.

News related stories:
Pension annuities gain as bailout for Spain sees markets up
Annuity Income falls as S&P downgrades Spain's credit rating
UK pension annuities future uncertain due to Eurozone crisis
UK annuity rates could see downward pressure from Greece failure
Unisex annuity rates to reduce annuities for males and couples
Related internet links:
Unisex annuity rates to reduce annuities for males and couples
Guardian - Greece close to bailout deal
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