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19 November 2012 last updated
Pension annuities income and markets boosted with Greece deal

Eurozone ministers and IMF officials meet to agree the bailout for Greece sending equity markets higher and benefiting pensioner funds before buying their annuities.

Equity markets have been given a boost with Eurozone finance ministers tentatively agreeing to a bailout for Greece worth up to 44 billion euros. This was combined with progress in the US over the "fiscal cliff" as Congress seek a deal before the end of the year.

The FTSE-100 index was higher by 132 points at 5,738 and the Dow Jones 208 higher at 12,796 with Madrid higher by 2.3%, Paris 2.93% and Frankfurt 2.49%. This ends a round of falling equity markets that reduced the FTSE to 5,606 and the Dow Jones to 12,588 earlier in the month.

For pensioners that remain in equities up until retirement before they buy their pension annuity it means they will benefit from the gains as their existing provider will only surrender their fund when the instructions are received.

 
Greece deal boost annuities
 
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Annuity income 2% higher after market gains

For pensioners with a portfolio weighted towards UK and US equities a gain in the value of the pension fund of about 2% would have been expected and this would transfer directly to the annuity income that can be paid.

For example, a male aged 65 with a fund of £100,000 and current annuity rates on a single life, level and monthly basis would receive an income of £5,605 pa. After the increase in equity markets the fund would increase to £102,000 and the annuity income would also increase by £112 pa to £5,717 pa.

According to the Office of National Statistics (ONS) a male aged 65 will live for a further 17.6 years so over his lifetime the extra income received would be £1,971 and for a female this would be more. The income for a 65 year old female with a fund of £100,000 is £5,384 pa increasing by £112 pa to £5,496 pa. A female's life expectancy is 20.2 years so the extra income for her would be £2,262.

Threats remain as France loses AAA rating

Moody's have removed France's AAA credit rating to Aa1 after being on a negative outlook for nine months and is the same rating given by Standard & Poor's. The threat is that investors that require AAA rated investments would remove funds from French government debt and move this elsewhere and as these are limited, UK government gilts are likely to be purchased.

This would increase the price and reduce the yield and as annuity rates are based on the 15-year gilt yields there would be a threat of lower annuity rates. The other danger for pensioners that remain in equities is that markets could decrease with any negative news and they should convert their fund to cash before buying their annuities to protect against a sudden fall in the market.


News related stories:
Buying annuities income could lower due to Spanish bank rescue
Annuities could increase as gilt yields up on Greece bailout deal
Annuity Income falls as S&P downgrades Spain's credit rating
UK annuity rates could see downward pressure from Greece failure
Retirement annuity income threat Greece euro exit
Related internet links:
Guardian - Greece debt tentative agreement
Yahoo - US fiscal cliff hopes
Telegraph - France AAA rating lost
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