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27 May 2015 last updated

Pension annuity rates up over 5% as providers are more competitive

Hodge life and Canada Life have increased their pension annuity rates by 5.7% as competition increases after the new pension changes from April 2015 and a more stable level of 15-year gilt yields in the market.

Standard annuity providers have increased their rates with Canada Life first followed by Hodge Life.

Improvements have been as much as 5.7% from Hodge Life for a 55 year old with £100,000 buying a level, single life annuity.

Other increases have been as much as 4.8% for those aged 65 to 70 for both single life and 50% joint life annuities.

Canada Life have also returned to the market with competitive rates although targeting specific ages and annuity types.

For impaired health both Just Retirement and Partnership have improved rates for a wide range of medical conditions. Even with no health issues, lifestyle enhancements are available based on height and weight that can often exceed standard rates.

Pension annuity rates up over 5% with competition
  Standard annuity rates rise over 5% as providers return to the market with more competitive rates
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Annuities improving from a low level

Standard annuity rates reached an all time low in January 2013 with our benchmark example for a person aged 65 with a fund of £100,000 buying a single life, level annuity paid an income of £5,373 pa.

  Benchmark annuity rates and gilt yields
  Nov Dec Jan Feb Mar Apr May
Rate £5,900 £5,755 £5,506 £5,494 £5,485 £5,507 £5,738
Yield 2.35% 2.15% 1.68% 2.15% 1.96% 2.18% 2.28%

Annuities recovered to £6,196 pa by November 2013 after the US Federal Reserve announced it was ending quantitative easing. Rates started to decline after this point as the European Central Bank (ECB) launched their €1.1 trillion quantitative easing programme which buys €60 billion of bonds per month into the Eurozone.

The latest low was reached in March 2015 when our benchmark example was at £5,485 pa as the 15-year gilt yields failed to recover significantly from the all time low level of 1.68% in January 2015.

Despite yields recovering providers have been reluctant to increase annuities, possibly due to the implementation of new pension rules from April 2015.

People retiring will welcome the improvement and for a 65 year old with a fund of £100,000 buying a single life, level annuity the income has increased by £254 pa to £5,738 pa.

In terms of lifetime income, the Office of National Statistics (ONS) would expect a male to live for 17.3 years and he will have £4,394 more over his lifetime. For a female she can expected to live for 20.4 years increasing her income by £5,181.

News related stories:
Best annuities could rise as Fed delays raising interest rates
Impaired annuity rates up 3.5% after recovery in 15-year gilt yields
UK annuities could rise as 15-year gilt yields makes a strong recovery
Annuity Rates
  Age Single Joint  
  55 £3,851 £3,569  
  60 £4,268 £3,973  
  65 £4,965 £4,581  
  70 £5,831 £5,274  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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