Hargreaves Lansdown predicts falling annuity rates
Annuity rates set for downward spiral
Annuity rate will fall significantly over the next twelve months, according to Hargreaves Lansdown.
Ordinarily, there is a fairly close correlation between bond yields and annuity rates, but as annuity providers continue to hold back from passing on the full extent of rising yields over recent months, annuity rates have been decoupling from bond markets.
Tom McPhail, head of pensions research at Hargreaves Lansdown, says, ‘With economic indicators now pointing downwards, we expect annuity rates to fall off quite sharply over the next year. The benchmark rate for a 65-year-old male is currently 7.7 per cent, we think that there is a strong argument for rates dropping well below seven per cent over the next 12 months.’
Along with gilts, corporate bonds form the underlying investments used to pay annuities. With the credit market seizing up, the yields on corporate bonds have spiralled to unprecedented levels – relative to gilts – and this, in turn, has allowed insurers to increase annuity rates.
Government measures to inject liquidity into the market and kick-start lending again will hopefully bring interest rates down. When the market does start functioning again, bond prices could jump as yields drop back. This is likely to bring downward pressure to bear on the annuity rates.
McPhail adds, ‘Looking further ahead, the impact of falls in sterling and escalating government debt could reintroduce upward pressure on rates. This is much less certain though and in the short term we feel that the pressures are universally downward.’

Advertisement
Latest news
L&G chief says insurers can play greater role in pension reform 1 July 2010
Legal & General group chief executive Tim Breedon has backed government ministers Iain Duncan-Smith and Steve Webb’s plans to reform the state pension system.
- Scottish Widows finds pensions saving at lowest since 2006 29 June 2010
- 'Nest' pensions may fail over high and complex charges 19 April 2010
- Pension incomes plummet for third consecutive year 31 March 2010
Top Ten Life Funds
| Fund | Offer | 1y | 3y | 5y |
|---|---|---|---|---|
| UBS Life Structured Credit A | 94.15 | 174.5 | n/a | n/a |
| Skandia Finland FIM Russia | 11.29 | 60.6 | -2.7 | 48.5 |
| Skandia Finland Alfred Berg Ryssland | 0.86 | 49.5 | -18.0 | n/a |
| Skandia Finland BlackRock Gold & General | 2.57 | 45.6 | 41.3 | 150.3 |
| Zurich American Property AL G4 | 43.30 | 44.7 | 20.9 | 39.3 |
| Skandia Norway Alfred Berg Ryssland | 0.87 | 41.2 | -16.8 | n/a |
| Aviva Investec Global Gold S4 | 0.00 | 41.0 | n/a | n/a |
| Skandia Finland JPM New European | 2.07 | 40.7 | -13.2 | 44.6 |
| Skandia Finland First State Greater China Growth | 1.35 | 40.0 | n/a | n/a |
| Skandia Finland Neptune Russia & Greater Russia | 1.49 | 39.8 | n/a | n/a |
Pensions in depth
Protection as standard 31 May 2010
Jenny Lowe weighs up the potential for products with unit-linked guarantees in the current market climate.
- SSAS or SIPP - you decide 17 April 2010
- The Pre-Budget Report: A policy of scorched earth
17 December 2009 - Make your child a millionaire 24 November 2009
Guides
Income drawdown 1 March 2010
When preparing for retirement, the various options on offer can seem daunting. Jenny Lowe considers the benefits and drawbacks of opting for income drawdown.
- Make your child a millionaire 8 December 2009
- WEBCHAT: Women and pensions 23 November 2009
- You’re on your own 6 October 2009
Special Offers
- Annual report service
Free access to annual reports and other information
on selected companies



