A hung Parliament is likely to have a positive impact on annuity rates, as uncertainty in the stockmarket would push gilt prices down and yields up, according to annuity experts.
LV= head of annuities Matt Trott says a hung Parliament would be the best outcome for annuities in the election but it is unclear if providers would pass on the increase in gilt yields to consumers.
If Labour wins the election, its plans to cut the budget deficit slower than other parties would see gilt prices come down and yields rise, says Trott, which should see an increase in annuity rates. He says if the Conservatives were to win a majority, the stockmarket would look favourably on the party’s policy to cut the budget deficit quicker than Labour, resulting in falling gilt yields.
Trott says: “A hung Parliament would be potentially beneficial for annuity rates because the uncertainty would push up gilt yields, which back annuities. The last hung Parliament was in 1974 and at that time gilt yields rose 20 basis points the next day and 30 points over the first month. In theory, this would be good news for people looking to annuitise.”
Hargreaves Lansdown pensions analyst Nigel Callaghan says: “The parties will take some time to form a Government if there is a hung Parliament and one thing the market does not like is indecision so bond prices are likely to fall, pushing up yields.
“I am not sure if annuity rates would work that quickly. If annuity providers thought there would be a blip for a few days, I would be surprised if they moved prices but if they see a trend they think is likely to continue they would probably act. One thing is for sure, come May 7, pricing actuaries are going to be very busy.”