PENSION ANNUITIES

Annuities are pensions in payment from life companies. They are bought with the proceeds of a pension policy at retirement.

 

Annuity providers previously assumed that males generally have shorter lives than females. Life expectancy is now 76 for males and 81 for females. This is good news, but for retirement planning it means a persons retirement fund is going to have to last longer and the only way to achieve this is to either set aside more or take a lower income each year in retirement.

 

When the EU gender directive came into force 21/12/12 it meant all Personal Annuity rates had to be quoted on a gender neutral basis. This meant a small increase in pension income for females and a small reduction in pension income for males taking out a new annuity. Existing annuitants were not affected and received their income as usual.

 

Many advisers feared the results of the ruling would mean annuity rates for men would have been a 5% to 13% better than females. However, rates today have probably settled near the midpoint of the previous male and female rates. Joint life policies are largely the same. I should point out that there are other considerations influencing a rate and they are age, health and guarantee features.

 

Movement in any direction was not dramatic. There have been differences for some single lives for example a single male with a level pension. In recent years annuity rates for men and women have been converging because mortality tables have been moving closer together because the recent improvements in mortality dominate more than the effects of the gender directive. Still, rates are still a couple of per cent better for women today than for men compared to before 21 Dec 2012.

 

Not only are there different types of annuity products out there but some providers offer more competitive rates than others so it is worth exercising your right to an open market option and if you are using a broker check you have received quotes from all the providers. A fee based adviser may be able to negotiate a reduced commission on the product giving you a better return.

 

One of the most popular is a protected annuity which provides a guaranteed income payable for life and any residual balance on death is payable to the annuitants estate. An important consideration for most is that an annuity takes away investment risk so there is no risk of you exhausting your retirement fund.

 

Annuity pricing changes frequently because the insurers mainly invest in European government bonds and the pricing changes frequently depending on the yield on these government bonds.

 

At the moment yields are quite low relative to historic norms although they have picked up slightly the changes in the yields have countered the effects of the move to unisex pricing.

 

For example a retirement fund of €300,000 for a person retiring today age 65 requiring a level pension guaranteed for 10 years would obtain a monthly pension of €1232.50 .