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6 July 2015 last updated
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| Impaired annuity rates up by 8% as provider competition increases |
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Impaired annuity providers are increasing their rates by up to 8% as the 15-year gilt yields remain high promoting more competition for business after the new pension rules allow people to take funds as cash rather than buy annuities.
Annuity rates are mainly based on changes in the 15-year gilt yields and since reaching an all time low in January of 1.96% have increased by 56 basis points.
In the last month yields are 24 basis points higher
and as a general rule this would result in a 2.4% increase in rates.
Providers of impaired annuity rates have increased their rates such as Just Retirement, Partnership and Liverpool Victoria as competition increases over people retiring and buying annuities, rather than taking their fund as cash, choosing flexi-access drawdown or a fixed term income plan.
Yields have been rising recently as investors have been selling bonds expecting a recovery in the eurozone as the European Central Bank (ECB) forecasts inflation to rise 0.3% up from 0.0%.
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Competition for annuity business increases after new pension rules and improving gilt yields |
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Providers expand definition for enhancement
Providers of impaired annuities have been adjusting their rates for different medical conditions adding 8.09% for someone aged 75 with a single life, level annuity and 7.62% for thoose aged 75 with 3% escalating and single life. For those aged 55 to 70 rates have increased by 2.26% to 5.76% for all other types of annuities.
On average impaired rates have increased by 5.21% which is more than the change in yields suggesting 2.4%. If yields do not increase in the future it is likely that providers will decrease there rates.
Since April 2015 when the new pension rules were introduced providers such as Retirement Advantage and Just Retirement have widened their definition for enhancements allowing them to compete with standard providers.
In contrast standard annuity providers have been slow to improve their rates even though yields have increased as the following table shows.
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Benchmark annuity rates and gilt yields |
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Jan |
Feb |
Mar |
Apr |
May |
June |
July |
| Rate |
£5,506 |
£5,494 |
£5,485 |
£5,507 |
£5,738 |
£5,781 |
£5,781 |
| Yield |
1.68% |
2.15% |
1.96% |
2.18% |
2.28% |
2.40% |
2.52% |
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Whereas impaired annuity rates have increased by up to 8% as providers target different medical conditions, standard providers have been reluctant to make improvements.
Many annuities for people with no medical conditions can receive enhancements for lifestyle conditions, such as height and weight, even if these are within normal ranges.
Add 40% to annuity income with poor health
With serious health conditions including strokes, cancers, diabetes and heart conditions and especially when there are combinations, providers can add 40% or more to the income offered by an existing provider.
Lifestyle conditions such as smoking, high blood pressure, Cholesterol
and being overweight an enhanced income by up to 18% when compared to standard annuities.
For example a person aged 65 with a fund of £100,000 could buy a level annuity with a standard income of £5,781 pa. With lifestyle conditions such as high blood pressure and Cholesterol and was prescribed three medications the income would be 18% higher at £6,821 pa and with more serious medical conditions the income offered could be 40% higher at £8,093 pa.
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Age |
Single |
Joint |
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55 |
£6,132 |
£5,784 |
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60 |
£6,532 |
£6,234 |
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65 |
£7,247 |
£6,808 |
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70 |
£8,170 |
£7,616 |
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£100,000 purchase, level rates, standard
Unisex rates and joint life basis |
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