Pension providers are failing to improve their rates despite rising gilt yields
While gilt yields have been on the rise, few providers have adjusted their corresponding annuity rates, according to the Annuity Bureau.
In the past few months, gilt yields have moved from around 4.9% to 5.11% but only Legal & General and Britannia Retirement solutions have subsequently improved their rates.
Ronnie Lymburn, director at the Annuity Bureau, said: 'It appears some groups are still worried about longevity so are leaving more fat in the products for themselves, to cover for longer life.'
Impaired rates continue to be a popular option but Lymburn said the product needs to be taken advantage of by more people. A smoker could see 5% more in the annuity they receive whereas a full-impaired annuity provides as much as 40% more than a conventional product, Lymburn said.
'We estimate that 12%-20% of those in retirement might qualify for impaired rates but not all take advantage of it.'
Groups such as the Guaranteed Underwriting Agency, GE and Evergreen are leading the way in impaired rates but providers such as the Pension Annuity Friendly Society have become less competitive in the area.
Canada Life and Prudential continue to lead the way in conventional annuity rates while previous well known providers such as Standard Life appear to be pricing themselves out of the market, according to the Annuity Bureau.
A year ago, Standard Life was a big player in the conventional annuity market, Lymburn said, but now, while still writing business, the group has not been especially competitive over the past year.
Norwich Union, while not to the extent of Standard Life, has also been dropping in and out as one of the more competitive providers over the past year but Friends Provident and Legal & General have remained competitive, according to Lymburn.
He said: 'With Standard Life, it looks like they have deliberately priced themselves out of the market and instead are relying on capturing the 55% of inertia that sees pensions members buy an annuity from the same provider of their pension.'
The Annuity Bureau estimates that some 40%'45% of pensions scheme members are not using the open market option and instead are tying themselves to more expensive products, which, with the low annuity rates of today, could be very disadvantageous.
Despite offering some of the leading rates, the Annuity Bureau said Canada Life is suffering under the strain of its new business, which is creating some slowdown in the administration of its products.
According to the group's annuity rate tables as of 20 June, Canada Life was ranked first for female 55, single life at level escalation, with an income of £6,836.88, compared to the income provided by Scottish Equitable, ranked 10, of £6,168.96.
Canada Life is also ranked first for female 60, 65, 70, 74, all single life and level escalation, as well as male and female age 60, 65 and 74, joint life.
Friends Provident heads the level escalation policies for men at all ages and single life policies, according to the tables, while Prudential, with escalation at RPI, offers some of the more competitive rates along with Norwich Union and NPI.
Canada Life and the Prudential have also been known in the recent past for creating more innovative annuity products aimed at giving investors more flexibility in retirement, however, the products have not been overly popular due to their complexity, Lymburn said.www.ifaonline.co.uk
Since November 2008
Share issue oversubscribed
PARTNER INSIGHT: For many advisers, outsourcing to a multi-manager or discretionary fund manager makes sense, allowing them to focus on the adviser-client relationship
Events, information and other services
An added tier of asset management can of course deliver additional benefits for certain investors, writes Graham Bentley - just be sure you can justify it to the regulator and, especially, the client