Yes, it’s true, annuity incomes to fall if UK annuity rates get hit. Experts are suggesting that pensioners are going to face a Solvency II fallout. Therefore, annuity rates could plummet by up to 30% as a direct result of changes to capital requirements under the incoming European Solvency II directive, Bob Bullivant , chief executive of Annuity Direct warned. Mr Bullivant said anyone opting to retire sometime after 2012 was likely to catch the bitter fallout from the European legislation, which he said would have a profound effect on the annuity incomes of up to 500,000 people.
Solvency II rules look at the prudential, or capital, regulation of insurers, and aim to be standardised across the EU. Mr Bullivant said if Solvency II was approved as it stands, it meant that from 2012 life insurance companies would be obliged to value their annuity liabilities using government gilt rates, rather than the current option of corporate bonds, which give a higher yield, and therefore higher UK annuity rates. He added that the result of this lower income to the larger life insurers means they will have to hold more capital to meet their pension annuity pay-out liabilities, and the knock-on impact is that annuity rates will fall dramatically, with most insider estimates being anywhere between 20% - 30%. Importantly, pensioners need to be aware of this potential problem if they defer their annuity purchase.
