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%.

Why There's No Better Time to Look at Enhanced Annuities

What with the Bank of England's Quantitative Easing Programme (don't worry, you don't need to know the details of this is to see its negative effects on annuities) and the proposed EU rules regarding gender discrimination when related to annuity rates, it's no wonder that many of the UK's large insurers have dropped their average annuity rates by between 3% and 5% over the last month alone.

December of this year will see the introduction of a new EU rule that says insurers can no longer use gender as a criterion when determining the annuity rate offered to a retiree. At present gender is one of the biggest factors when calculating annuity rates, but take this out of the equation and thousands of males could see their potential retirement income plummet by up to 20% while females see theirs rise a little.

Obviously there is nothing you can do about the Bank of England or the new EU rules but there are ways to ensure you get the most from your pension pot.