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20 September 2012 last updated
Retirement annuities reduced by 1.9% from leading provider

Retirement annuities have been reduced by Legal & General with two thirds of annuities now up to 1.9% lower even though gilt yields have increased.

Standard annuities provider Legal & General has reduced their UK annuity rates by 1.9% across the board for male, female and joint pensioners.

Legal & General are a market leader offering the highest rates for pensioners aged between 55 to 65. The largest decreases were for the younger annuitants with older annuitants experiencing decreases of up to 1.5%.

The last time they reduced their rates was 17 August by a similar amount and follows decreases in rates from impaired annuity providers such as Just Retirement, Liverpool Victoria and Partnership reducing their rates earlier in the month. There is a general trend with providers decreasing rates even though gilt yields are increasing.

 
UK annuity rates reduce
 
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Annuities decrease as gilt yields rise

UK annuity rates are based on the 15-year gilt yields and this month yields have increased from 2.07% to 2.39% and they are currently at 2.23%. This increase of 16 basis points would translate into a 1.6% increase in annuities, however, providers are actively reducing rates instead and this may be related to the Unisex Rates soon to be introduced by the EU Gender Directive on 21 December 2012.

This new Directive will mean male rates reduce by about 3.6% and female rates may increase by 2.4%. The current downward cycle from all providers applies to female rates as well so it is difficult to know exactly where rates will eventually be if providers push annuities to lower levels then they should be compared to gilt yields.

The current decreases in UK annuity rates will reduce pensioner income over their lifetime and represents poor value. For example a 55 year old male with a fund of £100,000 on a single life level basis could receive £4,727 pa before the decrease. After the decrease this reduces by £93 pa or £2,418 per annum more over his lifetime. By resisting to increase rates providers this difference can be retained by the provider improving their profitability. UK annuity rates are likely to decrease further as the full impact of Unisex Rates are applied up to December 2012.


Counter falls with different annuity options

By considering your options pensioners can improve the income offered by the conventional annuity providers. If an individual suffers from a lifestyle medical condition such as high blood pressure, Cholesterol, smoking or being overweight they could receive up to 18% more income using an enhanced annuity. For severe medical conditions such as diabetes, heart conditions or cancer they could receive 40% more income by using an impaired annuity.

Even if a pensioner is in good health they can receive an initial income of 30% higher than the conventional open market option annuity by using a with profits annuity or investment backed plan although they would need to take a slightly higher risk. therefore these annuities are more suitable where someone is still working or has other pension plans or a final salary pension. Even so the income from a with profits annuity is smoothed over time to avoid volatility in the equity markets.

News related stories:
Smoker annuity rates decrease by 2% across the board
Annuity rates 5% increase possible but providers resist
Impaired annuity rates reduce over 2% by providers
Solvency 2 will result in 8% lower annuity rates for pensioners
UK annuity rates fall up to 1.9% as Spain's bond yields soar
Impaired annuity rates fall 1% after week of declining gilts


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  Age Single Joint  
  55 £4,216 £3,974  
  60 £4,702 £4,423  
  65 £5,453 £5,013  
  70 £6,105 £5,482  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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