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25 April 2012 last updated
Impaired annuity rates increase despite UK double dip recession

Even though the UK economy returns to recession providers have increased impaired annuity rates as other factors improve gilt yields.

Providers of impaired annuities increased their rates and in particular Just Retirement and MGM Advantage improved rates by up to 1%. This is after a two week period where the 15-year gilt yields have increased 14 basis points from 2.54% to 2.68% and increased 2 basis points today.

As a general rule if gilt yields increase by 14 basis points this means impaired annuity rates could increase by 1.4% although as yields are fluctuating providers are likely to cautious about any increases so not fully reflect changes in gilts. For more updates see Annuity Rates Review.

This is in contrast to falls in smoker annuity rates last week that continue to weaken despite increases in yields as providers are aggressively reducing income for pensioners.

 
Impaired annuity rates increase
 
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Improving yields help improve impaired annuities

Providers of impaired annuities increased their rates and in particular Just Retirement and MGM Advantage improved rates by up to 1%. This is after a two week period where the 15-year gilt yields have increased 14 basis points from 2.54% to 2.68% and increased 2 basis points today. As a general rule if gilt yields increase by 14 basis points this means impaired annuity rates could increase by 1.4% although as yields are fluctuating providers are likely to cautious about any increases so not fully reflect changes in gilts. This is in contrast to falls in smoker annuity rates last week that continue to weaken despite increases in yields.

The UK economy fell back into recession according to the Office of National Statistics (ONS) with a decrease in gross domestic product (GDP) of 0.2% for the first three months of 2012. This follows the fourth quarter of 2011 where the economy shrank by 0.3% and is acknowledged by most economists as indicating that the economy is in recession. The markets had expected a slight increase of 0.1% for the first quarter of 2012 and despite this the FTSE-100 index is up slightly by 7 points to 5,718 with the Dow Jones index up 89 points at 13,090 and there where increases of up to 2.5% across European markets.

There could be risks for pensioners retiring now that remain invested in equities as a poor performing economy could result in a fall in equities. This would have an impact on an individual's pension fund which means the income from a pension annuity would be less. To reduce the risk of falling pension fund values people retiring today should consider moving their investments to a cash fund to reduce volatility and risk. This would give them more choices as in many cases a individuals faced with a lower fund would delay purchasing an annuity and the cost of this delay may be higher than they expect.

News related stories:
Smoker annuity rates fall despite rise in gilt yields
UK annuity rates fall as Eurozone fear spreads to markets and gilts
Annuity rates fall to lowest levels as gilt yields fail to improve
Enhanced annuity rates fall by up to 3% as gilt yields reduce
Related internet links:
Guardian - UK sinks into double-dip recession
BBC - UK economy in double dip recession
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