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Annuity rates tumbled in 2011

Annuity rates tumbled in 2011

Category: Annuities

Updated: 20/01/2012
First Published: 09/01/2012

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

New research from Investment Life & Pensions Moneyfacts has shown 2011 was another poor year for annuity rates, with annuity income falling for a fourth consecutive year.

Over the course of 2011 the average income generated by a standard level without guarantee annuity fell by 8.4% for a 65-year-old male and 7.7% for an equivalent female.

This was a much sharper reduction than in 2010 when the average standard annuity rate for both a male and female fell by 2.7%.

As a result, average annuity income has now fallen in each of the calendar years 2008 from 2011; the last time that annuity income actually increased during a calendar year was 2007, when annuity payouts rose by 4.4%.

By investing their pension pot in an annuity, pensioners guarantee themselves an annual income, while those with certain medical conditions can plump for an enhanced annuity, which enables them to draw a higher retirement income.

People with lifestyle conditions such as smoking also qualify for enhanced annuities.

The research also predicts further annuity income reductions are likely as annuity providers move towards the introduction of Solvency II and the implementation of neutral gender pricing following last year's European Court of Justice ruling banning the use of gender as a risk factor in calculating premiums.

"Unfortunately, by increasing the demand for fixed income instruments such as UK Government Bonds, the ongoing Eurozone crisis and the Bank of England's Quantitative Easing programme have driven gilt and corporate bond yields down over the last twelve months, both of which underpin annuities," Richard Eagling, Editor of Investment Life and Pensions Moneyfacts, said.

"In the short term, a successful resolution of the European debt crisis is crucial to stabilising annuity rates."

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