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Annuity rates on hold ahead of Budget ruling

The recent fall in annuity rates has slowed as figures from Alexander Forbes Annuity Bureau reveal most providers have held their prices as the gilt markets prepare for the emergency Budget.

In a snapshot of rates taken on June 1, the firm found that most providers had held their rates, with only Aviva and Aegon easing slightly but the best rates remained identical to May’s figures.

The best annuity rate for a 60-year-old male with £100,000 was Saga at £6,180. For a 60-year old woman with the same pot the best rate was £5,890, also from Saga.

Both male and female best rates are down from £6,440 and £6,100 respectively in June 2009.

It also found rates for smokers remained unchanged in June and have been consistent through 2010. Alexander Forbes says the best rate for a 60-year-old male smoker with £100,000 was from Reliance Mutual at £7,023.

Alexander Forbes Annuity Bureau director Tim Whiting says: “The annuity market seems to have taken a breather in June. Markets are probably waiting to see how tough the new Chancellor George Osborne is going to be on the public sector deficit in the emergency Budget on June 22.”

Whiting says the gilt market’s reaction to the Budget will make clear whether annuities will continue their downward trend for 2010 or will start to recover slightly.

He says: “Overall demographic pressures mean the long-term trend for annuities will inevitably continue to be downwards and people must make strenuous efforts to build up the largest possible pension before reaching retirement age.”

Hargreaves Lansdown pensions analyst Laith Khalaf says that while rates have been falling, it is impossible to predict where they may go in the coming months.

He says: “If you look at gilt yields of late, they have fallen and that will have an impact but you can point to reasons why rates will go up and why they will go down.

“The emergency Budget will certainly have an impact but the uncertainty surrounding Solvency II may also be a factor.”

In a recent report into the affects of Solvency II on life insurers, Fitch Ratings said any increased capital demands may well drive down rates.

The report says: “Any increase in capital requirements for new liabilities would lead to increased premium rates for policyholders or reduced return on equity, reflecting the increased cost of capital.”

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