New pension rules which will allow wealthier retirees to exert more control over how their pension fund is invested should in theory have the affect of pushing up annuity rates, according to one industry journalist. Writing in CityWire.co.uk, Lorna Bourke argues that because wealthier retirees will now not be forced to buy an annuity and instead may opt for income drawdown, rates should improve for everyone else who does buy an annuity. Because richer retirees tend to live longer, the amount insurers have to payout cumulatively should be lower as there will be less of these ‘wealthy annuitants’ to pay income to…
Bourke says that….”if most wealthy people are removed from the annuity pool, the average life expectancy of those still obliged to buy an annuity – those on low incomes – should fall and annuity rates should rise.” In theory this will counter-act the current problem facing annuitants of increasing lifetime expectancy, which has driven down rates. Whether annuity providers will reward new annuitants with better rates as a consequence of these changes is not yet known. However Bourke is not confident the savings will be passed on as she says that…”….Life companies are always trying to wriggle out of giving customers a fair deal.”
Most commercial financial organisations will not pay out more money unless they have to, so it is hardly surprising that insurers are not bending over backwards to give annuitants a better deal on their annuity unless they ask for it.
