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25 February 2013 last updated
Impaired annuity rates higher by 1.6% from Partnership

Provider Partnership have aggressively increased impaired annuity rates by another 1.6% after increases of 1.4% last week although the recent fall in gilt yields may prevent any further increases as investors seek safe havens.

Partnership have increased their impaired annuity rates by 3.0% in the last week as they move to compete against Just Retirement after a slow start to the year.

There are more risk in the market this week as gilt yields reduced by 9 basis points two days ago after the US comments to reduce or stop Quantitative Easing (QE) and the Bank of England suggesting they may inject up to £175 billion a new QE method.

As annuity rates are primarily based on the 15-year gilt yields any changes will have an impact on annuities. Increases in yields may take some time before being applied to rates while decreases may only take a few days before providers reduce rates that will impact pensioner income.

Impaired annuity rates higher
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Enhanced annuities increases 3% this week

Partnership is leading the market with rates for combined lifestyle medical conditions such as high blood pressure, Cholesterol and smoking with 3.0% increase in enhanced annuities and a better pension annuity income for people retiring. They are also competitive for more serious health conditions such as diabetes, heart conditions or cancer.

Impaired annuities reduced significantly in December last year as the EU Gender Directive applied new Unisex annuity rates. The lowest the 15-year gilt yields reached was August last year of 2.02% and they recovered to 2.31% by the end of December, however, annuities continued to decrease with male rates for those aged 55 lower by up to 11.9% and female rates for the same age lower by 8.5%.

Gender neutral pricing was expected to lower male rates by an average of 3.6% and increase female rates by 2.4% so the falls in enhanced and impaired annuities has created a gap between yields are and rates which is being closed.

As an example, the latest improvements by Partnership of 3.0% for a female aged 63 with a fund of £100,000 on a single life, level basis suffering from high blood pressure and Cholesterol and a smoker received an income of £7,094 pa and this has increased to £7,313 pa an increase of £219 pa. Based on the Office of National Statistics (ONS) life expectancy a female aged 63 would live for a further 22.1 years and receive £4,839 more whereas a male of the same age would live for 19.3 years and receive £4,226 over his lifetime.

Impaired health providers sensitive to gilt yield decreases

The leading standard pension annuity providers such as Legal & General, Canada Life and Aviva can withstand reducing yields for a longer period of time such as several weeks and in some cases the yields recover resulting in greater consistency for people retiring.

In contrast the leading providers of impaired health annuities such as Just Retirement, Partnership and Liverpool Victoria are more sensitive to changes in gilts often lowering rates after only a few days when there are significant reductions in yields. The recent 9 basis point fall in gilt yields as investors move their funds to the safety of US Treasury notes, German Bunds and UK government gilts may be followed by the impaired providers if yields do not recover quickly.

This can lead to problems when quotes are reaching the end of the guaranteed period which is usually between 28 and 45 days as once this expires the rates prevailing at the time will apply, which could be lower.

For people retiring time can be a pressure to transfer the funds before the annuity quote expires especially if there are multiple providers requiring different administrative procedures.

News related stories:
Best annuity income and markets fall 1.6% after US Fed stimulus fears
Pension annuity rates threat of £175bn QE from Bank of England
Enhanced annuities increase by 1.4% with more competition
Enhanced annuity rates up 1.3% by Just Retirement
Impaired annuity provider Partnership with 2% increase in rates
Impaired annuity rates up 3% as providers race to match rising market
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