The “meltdown in equity prices” of 2009 may mean that less people will want to take a pension annuity in 2010. For example at the start of the year a £100,000 joint life annuity for a male of 65 years of age and 60 year old female, with two thirds spouse’s pension and level payments, paid £6,431 annually. However by the end of the year this had fallen to £5,881 per year.The major reason why rates for annuities fell is that gilt yields fell, due to the government and Bank of England’s policy of printing money to stimulate the economy.
The Bank bought up government bonds or gilts in order to increase money for the government but this has the adverse effect of increasing their price and thus lessing the yield for insurance companies. In turn, this means they have to offer lower annuity rates as their income from the related investments is less. But for anyone who has their pension pot invested in equities, the falling rates for annuities may be offset against a higher pension pot. This is because the FTSE 100 index rose by 17% in 2009. This may lead to more people looking for combined annuity option of guaranteed and investment linked annuity.
