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14 November 2012 last updated
Annuity rates likely to lower as Bank of England gives QE hint

The Bank of England has hinted that more needs to be done to boost the UK economy such as Quantitative Easing (QE) which would result in lower annuity rates for pensioners.

Governor of the Bank of England Sir Mervyn King has slashed the growth forecast for the UK from 1.8% to 1.2% for 2013 with the possibility of the economy contracting in the last three months of the year.

The strong performance in the summer was simply down to the Olympic effect and the BoE has hinted that the economy would need stimulus to counter the slowdown. If this is provided by extending QE from the current £375 billion it will reduce gilt yields in the next few months.

Annuity rates are based on the 15-year gilt yields and if these reduce annuity income will decrease further reducing the value of pensioner income from their funds that have already been falling in the last few years.

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Impaired annuity rates lower

Impaired annuity provider Just Retirement reduced they rates by 1% following lower rates a few days ago and further enforces the strategy of providers to continue this downward cycle. There is also greater demand for annuities from pensioners currently as the EU Gender directive approaches to beat the deadline. To a certain extent providers are attempting to avoid too much business so as competitors reduce their rates this shifts excessive demand to other providers.

Liverpool Victoria is suffering with more demand than expected due to their higher annuity rates and this has resulted in slower response times for producing quotes. This may result in Liverpool Victoria following the other providers with lower annuity rates even though gilt yields have increased by 5 basis points to 2.23%.

If more stimulus using Quantitative Easing is announced to try and boost the economy gilt yields may return to the 2% mark seen earlier in the year although the effect would not be fully felt until 2013. A significant deterrent to more QE is higher inflation figures announced yesterday with the Consumer Price Index (CPI) up from 2.2% to 2.7%. More QE would send this higher and the Bank of England would be reluctant to do this as their target for CPI is set at 2.0%.

For the moment pensioners are likely to avoid lower gilt yields due to QE which will mean pension annuities will reduce for other reasons, such as unisex rates.

News related stories:
How Quantitative Easing can reduce annuity rates
Impaired annuity rates have been reduced up to 2% as gilt yields fall
UK annuities to stabilise with Bank of England stance on QE
Annuity rates could remain at current levels with no more QE
UK annuity rates may lower as QE expected after falling inflation
Retirement annuities threat if BoE move for more Quantitative Easing
Pension annuity buyers biggest losers from QE while richest 5% gain
Related internet links:
BBC - Bank of England cuts growth forecast
Guardian - BoE hints of more QE
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