How New EU Rules Will Affect Your Annuity Rates

The Solvency II Rule

This new rule, due to be implemented early in 2014, will require insurers to keep a larger sum of money close to home, just in case it is needed as security. This will ultimately mean that insurers have to change the way that they invest money and it is thought they will initially do this by opting for the relatively safe vehicle of government bonds rather than the higher paying corporate bonds.

Unfortunately lower bond yields also mean lower annuity rates and according to top business advisory firm Deloitte, the lower potential for growth could equate to an average drop in annuity rates of 5%, and if the worst happens this could increase up to 20%.

This change alone could therefore mean that the annual pay-out from a £100,000 pension pot drops by around £300 (at 5%) and around £1100 if annuity rates drop by 20%.

The Gender Discrimination Rule

The second rule that is set to affect annuity rates in the UK will come into force in December of this year and will mean that insurers can no longer use gender as a factor when providing annuity quotes. Most people know that life expectancy when it comes to insurance quotes and hence annuity quotes is related to gender, so taking this factor away means that from December both men and women will be quoted in the same way.

What effect will this have on you? Well if you are female then you'll probably see a small increase in the annuity rates quoted to you but if you're male then expect a big drop - possibly as big as 15-20%.

Beating the Rules

Sadly there is nothing you can do to avoid the actions that insurers are going to have to take by law but you can shop around to find the best annuity rates available for your individual circumstances. In fact, the changes that are occurring in relations to annuities make it imperative that you do shop around and compare as many annuity products as you possibly can before making a decision. As things stand now the difference between the best annuity rate and the worst on the market is around £500 per year (based on £100,000 pension pot) and this gap is obviously going to increase as the new rules become law.

You should also look into the possibility of applying for an enhanced annuity, and especially if you have pre-existing medical conditions that may shorten your life or if you're a long term smoker. Retirees that are considered to be in poor health can often get up to 50% more income per year simply by opting for an enhanced annuity - but you may need a bit of help from an annuity specialist to find the best rates.


Article Source: Mike Dobson