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4 April 2013 last updated |
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Best annuity income prospects improve with strong service sector data |
An improvement in the service sector data suggests that the UK will avoid a triple-dip recession avoiding the need for the Bank of England to opt for another round of Quantitative Easing which improves the prospects of the best annuity income for people retiring.
UK annuity rates are based on the 15-year gilt yields and any change will have impact the best annuity income at retirement.
The level of yields will fall when the price of gilts increases and the Bank of England's Quantitative Easing programme specifically buys gilts to increase the supply of money to the economy, thereby reducing yields and income from annuities.
The purchasing manager index (PMI) for the service sector has improved to 52.4 up from 51.8 where a figure over 50 indicates expansion and below contraction and as services represent 93% of the UK economy the results can influence action taken by the Bank of England. |
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Annuities to avoid more Quantitative Easing
The current level of Quantitative Easing (QE) is £375 billion which the Monetary Policy Committee (MPC) decided not to extend and to keep interest rates at a record low for four years of 0.5%. The Chancellor George Osborne changed the BoE's mandate slightly by allowing it to ignore the level of inflation for one-off factors when setting QE levels.
Quantitative Easing increasing the supply of money into the economy and tends to increase inflation over time. The Bank of England has a target for inflation of 2% and by being able to ignore this can take short term measures which could include for QE. When the Bank of England introduced £50 billion of Quantitative Easing in July last year the 15-year gilt yields reduced to an all time low in August of 2.02% followed by pension annuity rates.
Yields had reached a high for the year of 2.76% with growing optimism about the global economy, however, yields have fallen back to 2.28% with a four basis point fall today which could impact annuity rates.
At previous MPC meetings three of the nine members voted for more QE of £25 billion and for mow people retiring to buy annuities can remove this threat. If the service figures were poor the UK would have entered into a triple-dip recession and the prospects for UK annuity rates would have been negative. The results of the data indicate that the UK economy increased by 0.1% in the first quarter of the year after contracting 0.3% in the fourth quarter last year.
Increasing annuity income at retirement
With annuity rates just above their all time lows reached in January people retiring should be aware of the ways they can increase annuity income to above the standard lifetime annuity rates.
For those that suffer from lifestyle medical condition
such as high blood pressure, Cholesterol, are a smoker or are overweight they could receive up to 18% more income from an enhanced annuity. For more severe medical conditions such as diabetes, heart conditions or cancer an impaired annuity can increase incomes by up to 40% over standard annuities.
For people in good health initial incomes could be 30% higher than the standard rates using a with profits annuity or investment backed
annuity. This type of option is more suitable for those with other pensions os a final salary scheme as the risks are slightly higher since the income can go down as well as up over time. It may take 20 years for this income to fall to the level of a standard annuity so is useful for people that would like as much income now while they are healthy and can enjoy the extra money from an annuity.
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Age |
Single |
Joint |
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55 |
£6,361 |
£5,898 |
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60 |
£6,842 |
£6,244 |
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65 |
£7,474 |
£6,843 |
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70 |
£8,405 |
£7,660 |
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£100,000 purchase, level rates, standard
Unisex rates and joint life basis |
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