Everyone knows that Annuity rates have fallen significantly over recent years. The latest dip in gilt yields, to their lowest level since the 1700’s, has done nothing to help the problem.
Gender Directive to affect Annuity rates?
The issue is likely to be compounded for men by the implementation of the European Union Gender Directive on 21st December 2012.
The ruling means that Annuity providers will not be able to discriminate between men and women when they set Annuity rates.
Any pension calculator will show that men get better Annuity rates than women, due to the simple fact that they don’t live as long. However, when insurers implement the directive, unisex Annuity rates will be introduced, which is likely to lead to a further reduction in Annuity rates for men; forecasts by theTreasury suggest that Annuity rates for men could fall by as much as 13% as a result of the Directive.
It is therefore logical to ask whether men approaching retirement, say over the next couple of years, should buy their Annuity before the implementation of the Directive?
First things first, when will Annuity providers implement the Directive?
|Annuity provider||When will they move to unisex Annuity rates?|
|Aviva||Towards the end of Quarter 4|
|Canada Life||Will review Annuity rates before 21st December|
|Friends Life||Closer to the end of the year|
|Just Retirement||Under consideration|
|Legal & General||Likely 21st December|
|MGM Advantage||On or very close to 21st December|
|Royal London||A few weeks prior to 21st December|
|Standard Life||In time for 21st December|
Research by the Financial Times newspaper (right) shows that most Annuity providers will all adopt the Directive towards the end of the year.
It is clear though that no provider has yet moved to unisex Annuity rates, which means that the recent falls in rates are down, in most part, to falling gilt yields.
There is therefore the opportunity for men to arrange their Annuity before unisex rates are adopted and thus avoiding a potentially lower income for the rest of their life.
However should men rush into buying your Annuity now?
Is an Annuity the right option?
The first thing to do of course is to check that an Annuity is the right option in the first place.
If you want a simple solution, which is going to provide you with as guaranteed income for life then it may well be, but you should also consider other options, such as Income Drawdown or a Fixed Term Annuity.
Assuming you’ve done your research and an Annuity is the right option, when should it be bought?
Reasons to bring forward the date a man should by his Annuity
• Most people believe that the Gender Directive will reduce Annuity rates for men, and the change has clearly not been priced into current Annuity rates
• If gilt yields continue to fall this will further reduce Annuity rates
• Stockmarket volatility could reduce the pension fund available to purchase an Annuity, of course after the recent resurgence in the Eurozone crisis this may have already happened
• If you want to avoid stockmarket volatility and decide to move into a Cash or Deposit fund it is highly likely that the return you get between now and retirement will be less than the income you would have got from the Annuity, even allowing for tax
Reasons not to bring forward the date a man should by his Annuity
• The predicted fall in male Annuity rates may not materialise
• Typically Annuity rates rise with age, however a delay of one year for a male aged 64 with a typical £100,000 pension fund would currently only give an extra £171, before tax, per year, if rates do fall it is possible this could wipe out any gain attributable to increased age
• Annuity rates could surprise us and start to rise. For the record we believe this is highly unlikely and at present there are few, if any, signs that Annuity rates will rise in the short term
• Rushing into an Annuity purchase could mean you make decisions in haste and without due consideration, which could lead to the wrong decision being taken, which cannot be changed at a later date
• You may not qualify for an Enhanced Annuity now, however you might do in the future if your health deteriorates
Whenever possible we aim to give clear guidance.
Our view is that no decisions should be rushed, there are still a few months between now and quarter four, when most providers will implement the Directive.
Firstly, you need to establish whether an Annuity is the right choice for you; there are many other retirement options, all with their own particular advantages and disadvantages.
Assuming an Annuity is the right choice, and you are of course male, should you delay or bring forward your purchase?
Our view is that the introduction of unisex Annuity rates will lead to lower rates for men, therefore if you are planning on buying an Annuity over the next 18 months or so, then it would be sensible to consider bringing forward your purchase to a date before most providers have indicated they will review their rates.
Of course you might think we would say that, however we do believe that there is significant evidence Annuity rates, for men at least, will be lower in 2013 than they currently are. We can see no case for Annuity rates rising over the next 18 months.
Of course there are no guarantees and even our crystal ball has been known to fail, but we can only give our honest and considered opinions.
If you would like to discuss your options and whether you should bring forward the date of your Annuity purchase then call one of our IFAs today on 0115 933 8433, alternatively enquire online or email firstname.lastname@example.org