Annuity rates plummet due to money-printing

| October 11, 2012
Annuity rates plummet due to money-printing

Annuity rates have fallen by 7 per cent in just three months according to MGM Advantage, the retirement income specialist.

This means that a 65 year old man with pension savings of £50,000 would receive a retirement income of £2,579 a year from the annuity they purchased with their pension pot, compared with £2,778 in July.

Annuity rates are now more than 11 per cent lower than they were in June 2009, MGM said.

The decline in annuity rates has been attributed to the Bank of England’s policy of quantitative easing.

The Bank has boosted the struggling economy by printing £375 billion to purchase government bonds known as gilts.

This has increased the demand for gilts and reduced yields to historic lows.

As gilts are the asset class used to fund pensions, a fall in gilt yields causes a subsequent fall in annuity rates.

Dr Ros Altmann, Director General at Saga said: “As well reducing spending amongst older people, QE has also has decimated corporate pension funds, forcing some firms into bankruptcy while others have had to divert resources into supporting their pension schemes rather than business expansion.

Male pensioners will also be hit by a European Directive which comes into force in December.

The new rule makes it illegal to use gender as a criterion when setting prices.

Currently, men receive a higher annuity than women because they have a lower life expectancy, but this will no longer be taken into account.

The annuity rates for male pension savers could fall by up to 13 per cent as a result of the directive.

Men who plan to buy an annuity in the next few months are therefore being advised to act before the directive comes into effect and accelerates the decline in annuity rates even further.

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