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Annuities hit by gilt spree

Providers have cut their annuity income offers by up to 3.6 per cent since the Bank of England started its quantitative easing programme last week.

The plan to buy £75bn worth of gilts has seen gilt prices surge and yields drop. Many life offices back their annuity books with gilts and are cutting annuity income offers to recoup losses from the reduction in yield.

Reliance Mutual has reduced payouts by 3.6 per cent in the past week while Standard Life has made a 3.4 per cent reduction and Just Retirement is down by 3 per cent. Canada Life and LV= have both dropped by 2.5 per cent and Norwich Union and Legal & General have brought in reductions of 2 per cent.

Hargreaves Lansdown research reveals that a 65-year old man with a £100,000 fund could secure an annual income of £7,135 on March 16 compared with £7,240 on March 9 and £7,920 in July 2008.

Pension analyst Nigel Callaghan says Government policy may help the economy at large but it is bad news for those approaching retirement. He says: “Government borrowing to bail out the banks and kickstart the economy will almost inev-itably lead to huge inflationary pressure further down the line.

“There is a strong argument that investors should buy, with at least part of their funds, an RPI-linked annuity.”

Annuity Direct director Stuart Bayliss says the spread between best and worst annuities has doubled to as much as 30 per cent since July and the trend is likely to continue.

He says: “The more competitive providers back their portfolios with corporate bonds and rarely have more than 20 per cent in gilts while the less competitive annuity players generally have a much greater holding of gilts.”

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