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Bulk buys will drive down annuity rates

Pension consultant Ros Altmann is warning that a flood of final-salary schemes doing bulk buyout deals will drive down annuity rates.

She says annuity markets could be swamped with demand from final-salary scheme employers looking to cap their risks over time by doing bulk annuity deals. Altmann says the Government must issue longevity or mortality gilts and more long-dated index-linked gilts to help employers and insurers manage the run-off.

She says: “The annuity market is at risk because if more and more final-salary schemes are buying out their members, then that has to work against their defined-contribution pensions. These are bulk deals, so the pricing has to go against them.”

Hargreaves Lansdown pensions analyst Laith Khalaf says: “Bulk buyouts would mean lower annuity rates. A lot of people buying annuities on a large scale puts an increased demand on gilts, raising prices and lowering yields. Bulk annuity deals are a downward pressure on rates so potentially it is an area of concern but there are a lot of other factors that determine rates.”

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