View more on these topics

Buchanan warns new pension vehicle may depress annuity rates

Pension simplification will put further downward pressure on annuity rates as increasing numbers of people favour alternative secured pensions over annuities, providers are warning.

Many retirees will take out ASPs as they do not have long life expectancy. Actuarial assumptions underpinning standard annuity rates will therefore need to change as there will be fewer retirees with shorter lifespans to offset those who live beyond their life expectancy.

Scottish Life group communications director Alasdair Buchanan says standard annuity rates assume a standard rate of health among annuitants but, if more retirees choose not to annuitise, then the average assumption of health levels will be wrong.

GE Life head of strategic development Dave Lowe also believes that ASPs could depress annuity rates but maintains that the key determinant of rates will continue to be long-term gilt yieldsBuchanan says: “Conventional annuity rates are going to worsen. If people of a certain type are in ASPs, the assumption that everyone annuitising is of standard health is going to be flawed.”

Lowe says: “Standard rates will worsen because of people exercising this choice but you need to look at all the factors at play bringing downward pressure on annuity rates.”

Recommended

Service double faults

Brokers berating life offices for poor service should consider the quality of business that they submit.

Equitable faces payout to 1,500

Equitable Life may have to pay compensation to 1,500 policyholders after a lead case was upheld by the Financial Ombudsman Service last week.

Rensburg Battle Continues

Following Carr Sheppards Crosthwaites reverse takeover offer for Rensburg last week, Rathbones has re-entered the fight by saying its offer for Rensburg remains compelling.Rathbones says it does not intend to improve its revised offer, announced on February 27th, despite Sheppards interest, and positive reception from Rensburg management. Rathbones believes its offer provides a full and […]

Solving the income puzzle

There is a puzzle at the centre of financial markets. The global economy is growing, there are signs of inflation and interest rates are going up, yet yields remain low. In this article, James Foster, manager of the Artemis Monthly Distribution fund, unpicks this conundrum and looks at where investors can find income. There is […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment