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Burrows: Annuity update

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There has been very little movement in annuity rates over the last month as bond yields remain steady. There is still an expectation that yields will rise in the future but, as I have reported in previous updates, it seems unlikely that the full benefit of any rise in yields will be passed on to annuitants.

It is now nearly three months since the Budget and sales of annuities have reduced dramatically. However, it seems after the initial shock and realisation that, for many people, annuities will no longer be the product of choice, a relative calm has returned to the market.

Looking to the future, I see no reason why annuities, especially enhanced annuities, will not continue to be keenly priced, especially if the competition between the providers continues at the same intensity.

The biggest unknown is still the effect reduced demand will have on mortality cross-subsidy as the pool of people buying annuities reduces and the pattern of annuity purchases changes.

It may be boring reporting on annuity trends at the moment because there is not much happening but I expect that all to change as we get closer to 2015.

Billy Burrows is director of Retirement Intelligence

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