Annuity Rates remained on hold this month with little movement compared with those offered in April, as providers seem cautious admidst huge uncertainty in the Eurozone. Gemma Goodman from the Alexander Forbes Consultants & Actuaries noted that the only rate fluctuation was Aviva dropping it’s smokers rate by £150. She added that annuity providers were waiting to see what would happen in the next few weeks and as a consequence there would be no sudden movements.

Below are the top rates for a male single life annuity based on a 60 year old with a £100,000 fund…

• Aviva – £5540
• Canada Life – £5393
• Hodge Life – £5341
• L&G –  £5338
• Prudential – £4848

• Standard Life – £3022.80
• Aviva – £3020
• Canada Life – £2900
• L&G – £2883
• Prudential – £2677

Smokers rates for May 2012…

• Mutual Life – £6721
• LV= – £6377
• Canada Life – £6099
• L&G – £5841.

Ms Goodman blamed the low rates on low gilt yields and the continuing threat of another round of quantitative easing. Experts advise then when annuity rates do fall, IFA’s should ensure applicants get their forms in on time. Some clients may not understand the necessity to get the form sent in on time as waiting too long may mean they miss the rate they have been offered.

I found this video on Youtube from annuity expert Tom McPhail. It was created back in 2011 but has some really useful advice for those coming up to retirement. It offers some useful tips such as consolidating your pension funds plus a brief overview of the main choices on offer for those who have been saving into a defined contributions pension scheme.  This video will really help those who know they perhaps need to buy an annuity but do not understand what their options actually are.

Leading annuity providers are considering cutting guarantee periods in advance of the ban on gender based pricing for insurance products. From December 21st this year it will be unlawful to price insurance products based on a person’s gender because of an EU directive which deemed the practice discriminatory. Guarantee periods ensure that the income from an annuity is protected in the event of the annuitant dying prematurely within the guarantee period. Matt Trott who is head of annuities at LV= said… “…a gender-specific guarantee period cannot go beyond December 21 so providers have two options. One is to introduce gender-neutral prices early and the other is to reduce guarantee periods.”

Gender pricing was a controversial introduction into the annuity market as the majority of annuities are bought (by men) for themselves and their partner/spouse. Only single women are likely to see a slight increase in annuity rates, but they only make up 20% of all annuitants.  LV= themselves offer a guarantee period of 30 days with L&G offering a period of 30 days. Annuity expert Billy Burrows argues that there needs to be an “orderly transition” as well as a “clear timetable” before the cut off date.

For more information about the impact of the ban on gender-pricing, check out this article by Mr Burrows which takes a comprehensive look at what the effects will be. One other point to add is that not only will the partner’s of male annuitants see a drop in annuity income (around 5%) but they will also feel the effect of a drop in the income paid from joint-life annuities. So whilst the bureaucrats in Europe, to coin a phrase, alter the law in the name of equality, in reality all they are doing is lessing the living standards for the majority of retired women, unless they are single that is. Another possible consequence of the ban could be that level annuities become less appealing as the rates will have fallen, with more attention being focused on investment-linked annuities and drawdown.

A new reported published by insurer LV= has found that over six million over 50′s have no private pension provision and will be solely reliant on the state for retirement income. At present the number of retirees living only on the state pension is 1.2 million but this figure could rise sharply in the future as more of the population goes into retirement. The report notes that these 1.2 million retirees have to live on an income that is £5,890 less than the minimum wage. The data also uncovered that 43% of those questioned believed they could not survive financially on the minimum wage. Many of us may look on retirement as a golden era of relaxation coupled with leisurely activities but the reality for many is very different. Even if you consider those who do have a private pension, the average income from this is just £7,488. Couple this income amount with the state pension entitlement and the total income only reaches £11,477, slightly above the minimum wage. The LV= reported also found that 15% of those who are retired or who are intending to retire within 5 years are cutting back on long term savings. The average amount by which people are cutting their savings is nearly £300 per month.

There has also been cuts to the amount of money people are contributing to their private pensions. The average cut in the private sector was £523 per month with the public sector average cut coming in at £164. The problem is worse for women than for men as 37% of women over 50 have no pension provision at all compared with 20% of all men over 50. Ray Chinn from LV= said that it was worrying that so many people were planning to rely solely on the state pension in retirement and said saving could be encourage if people perceived their pensions as a ‘wage’.

Pension credits help the poorest pensioners increase their income but the government is planning to abolish these and instead implement a universal basic state pension of £140 per week. However 66% of those questioned about this in the report thought the changes were unfair as this would reduce the annual income of those who rely solely on the state pension. Many of those approaching retirement within the next five years have over the past year become concerned about their living standards in retirement. They are concerned specifically about rising energy, food and fuel costs which have rocketed in price throughout the course of the recession. Other worries include the poor economic outlook, the impact on inflation and proposed reforms to the pension system. Many are having to delay their retirement plans as they will have to work longer in order to support themselves in retirement. There is also very little support for government changes to the pension rules which include raising the retirement age to 66 by 2020 and abolishing age-related allowances.

Some welcoming medical news emerged this week from the charity Cancer Research UK who say that the number of people in their 50s dying prematurely from cancer has fallen for the first time in 40 years. Back in 1971 the number of people dying from the disease was 21,300 but the last recorded number of deaths taken back in 2012 shows that this number fell to just 14,000. For the over 50′s age group, the figures show that in 1971 there were 310 deaths for every 100,000 people. This fell to just 185 in every 100,000 in 2010.

The research also found a drop in the number of people dying from Hodgkin’s lymphoma which has fallen by over 75% as well as a fall in the number of people dying from stomach cancer which is now less than 2 in every 100,000. The cancers that have dropped most prominently for men include testicular cacner, lung cancer as well as Hodgkin’s lymphoma. For women cervical and bowel cancer have shown a decrease since the early 1970′s.

The reason why cancer rates have fallen is down to a number of different factors. One of the main factors is that there has been a fall in the number of people who smoke. Back in the early 1970′s there was no ban on smoking in public places as well as less promotion of the dangers of smoking. You can see in Cancer Research’s own statistics that smoking rates have fallen heavily, with around 50% of all men still smoking in the mid 1970′s. Today that figure has dropped to just over 20%. Another reason why deaths have fallen is that there is better treatment for some cancers such as testicular cancer and Hodgkin’s lymphoma. Screening has also improved, as have cancer drugs and the diagnosis and treatments offered.

Peter Johnson from Cancer Research acknowledged the part the smoking ban has played in reducing the number of cancer deaths and said the research his organisation did was vital to continue to reduce this number further.

Chris Grayling, the current employment minister says he wants to…”…unleash a wave of new entrepreneurs” by offering over 50′s financial incentives aimed at helping them start their own businesses. The special enterprise allowances are similar to a scheme launched in the 1980′s and is aimed at reducing the number of over 50′s out of work, which has risen throughout the recession. Mr Grayling said the problem of unemployment was right at the top of the government’s agenda. Last month saw a slight decrease in the level of unemployment but there is still concern about the number of long term unemployed, especially those in the over 50′s age group.  There are 260,000 over 50′s claiming jobseekers allowance, 25,000 of which have been out of work for more than two years.  The figure claiming this benefit was less than 8,000 back in 2009.

The allowance is aimed at creating as many as 40,000 new small businesses in sectors such as joiners, gardeners and bricklayers to name but a few. The scheme is scheduled to last for two years but the government said it maybe extended due to demand. To qualify you have to have been in receipt of jobseekers allowance for more than three months.  If your application is successful you get an initial £1,000 loan plus an additional £65 a week for the first 13 weeks and then £33 for the following 13 weeks. Candidates are also mentored by local business specialists in the early stages of their new business.

Despite a fall in unemployment of 35,000 last month, there are still strong calls from the opposition to change course with regard to the government’s economic policy. However Mr Grayling said that although the employment market was indeed “challenging”, altering the current economic strategy would result in higher levels of unemployment.  Getting back into work is proving especially difficult for those in the over 50′s age backet as employers tend to prefer recruiting younger candidates as often as they can pay them a lower salary. This kind of age related discrimination was clear to see in the case of ex Thresher’s franchisee Anthony Barlow who sent in two job applications, one with his real age and one with a false, younger age. The application with the false age received an invitation to attend an interview while the ‘real’ application received the response saying that Mr Barlow did not reach the required standard.

The number of pension managers using annuity brokers has been rising at a time when there are an increasing number of DC pension savers coming up to retirement age. With rates being at an all time low, some companies are taking action to ensure that their employees get the best advice when it comes to retirement income planning. A recent survey conducted by the website Pensionweb found a majority of pension managers confirming that they were using an established external annuity broker, with over a third choosing to use Hargreaves Lansdown. However in 20% of cases the scheme left members to decide for themselves.  Ralph Turner from Pensionweb said that….”…it’s no surprise that, in the main, managers are using the established broking service offered by Hargreaves Lansdown.”  He added that he expected the market to grow in terms of the number of clients as well as the number of actual brokers.

Although there are record numbers of people retiring this year thanks to the babyboom after the second world war, the number will only increase in the years to come. With defined benefit pension schemes becoming a relic of the past there will be more and more people buying an annuity from their pension pot. Demand for annuities in the future will be further boosted with the introduction of auto enrolment which comes into effect for larger companies later this year. Thousands of workers who have no pension provision at all will join the scheme creating thousands of future annuitants. This will of course then drive demand for brokering services and also increase competition between annuity providers. Mr Turner also suggests that increased demand for annuities will lead to a greater range of annuity products becoming available. With rates being as they are level annuities are becoming less attractive and so more attention is being focussed on alternative annuity options that offer more flexibility. There is also likely to be even greater calls for more to be done to encourage retirees to use the open market option. We have already seen the ABI introduce a voluntary code of conduct which aims to give more information about shopping around to those approaching retirement.

In short we will have more retirees, more DC savers, more annuity products, greater awareness of OMO which can only mean one thing…..more annuity brokers.

Those worried about a future crisis in funding for care services were given little to cheer about in yesterday’s Queen’s speech which omitted any care servies reform legislation.  All that was announced was that a “draft Bill” would be created next year aimed at improving the legal framework for care homes and associated services. However there was no mention about how the government planned to solve the problem of funding an ever increasing number of people requiring care services. Despite the Dilnot review reporting in the middle of last year about what reforms were needed, officials yesterday conceded that it was unlikely legislation would go before Parliament before 2013/14.  This comes on the back of an open letter sent to David Cameron on behalf of 78 charities and campaign groups stating that there was a postcode lottery in which thousands of people were losing their savings and homes due to the current situation in care services funding. What’s more the cost of care services funding will rise in the next decade and could reach an average of £33,000 a year, as reported by us earlier this week.

Simon Gillespie from the Care and Support Alliance stated that many charities were…“…deeply disappointed” by the omission of a full legislative Bill. Ros Altmann who is Director General of SAGA and long time campaigner for the elderly said that legislation could take as long as 2015 to come around. Some experts criticised the government for focusing more on the reform of the House of Lords rather than using the opportunity to press on with much needed reform of the care system. This may have been because they needed to appease the Liberal Democrats who are strong supporters of Lords reform.

The lack of a care services Bill in the Queen’s speech may seem strange to some as one of the first things this government did when in office was commission a review from Dilnot into care services funding.  At the moment anyone with assets including property worth over £23,500 gets no financial assistance with care costs from the state. This has lead to thousands of elderly people and their families having to sell their property in order to pay for care.

The Dilnot report proposed capping the amount an individual would have to contribute as well as raising the threshold for means testing to above £100,000 worth of assets.  However, it is thought that because of the dire current economic conditions, the Treasury does not want to pay the estimated £1.7 billion a year needed in order to implement the Dilnot reforms. The main three political parties have held cross party talks aimed at resolving the situation but the Labour Party warned it would withdraw from these if the government fails to act on the issue.

Figures produced by the Intergenerational Foundation have found that nearly 80,000 ex-public sector workers receive a pension income higher than the average UK salary of £25,900. The organisation says that more needs to be done to pass the wealth on from the older generation to the younger generation. They argue that the liability for public sector pensions burdens each household in the UK to the tune of £45,000 a year and says there is “pension apartheid” in the public sector. There certainly are sharp differences in the pension benefits in the public sector compared to the private sector. For example the number of workers in the public sector enroled onto a final salary pension scheme is nearly 9 in 10 but the figure is only 1 in 10 in the private sector.  The foundation also found that the average private sector retiree gets just £3,700 a year, compared to £7,000 in the public sector.

Of those retired public sector workers, 78,000 get an income in excess of £25,900 a year, which is higher than the average wage in the UK. Remarkably 12,263 of retired public sector workers get a pension of more than £50,000 a year (mostly doctors). However it must also be noted that the overwhelming majority of public sector retirees do not get this much and receive less than £25,000 a year. Ed Howker from the Intergenerational Foundation says that the research “…shows that the pension prospects of public and private sectors workers are out of whack, and that future taxpayers face the difficult prospect of paying large public sector pension bills of a size and scale which is much larger that they are likely to receive themselves.”   The foundation also argues that younger people are having to bank roll public sector pensions whilst also having to deal with higher mortgage costs, tuition fees and a tough labour market. They want final salary pension schemes to be phased out in the public sector and an overall cap to be introduced.

Their plans are unlikely to go down well with vested interest groups including the Trade Unions who are vehemently opposed to the current public sector pension reforms being proposed. The ideas recommended by the foundation go far beyond anything put forward by the government. Many proponents of reform point to higher pay in the public sector.  However this is not true at all levels as if you are degree educated you are likely to earn less in the public sector. Also a lot of lower skilled public sector jobs have been farmed out the the private sector now. Supporters of reform could also cite the research showing that private sector workers on average work a longer number of hours.

Just Retirement, one of the leading annuity providers in the UK has this week announced a sharp rise in sales of annuities, including enhanced and fixed rate annuities. Sales volumes for annuities reached £313 million in the first three months of this year, which is an increase of 35 per cent on the 2011 figure of £232 million. The total group sales rose by an impressive 32% on the back of additional revenue from sales of their equity release product which was up 17.5% at £68.6 million. With record numbers of people retiring this year coupled greater awareness of using the open market option, it looks set to be a record year for the retirement specialist.

In the last nine months alone the company has generated £833m in annuity sales and £206m in equity release sales, which represents significant growth on the figures for the previous financial year. Rodney Cook who is the company’s CEO acknowledged the strong performance of the company saying that…“…sales for the group in 2012 show an upward trend for both products and we expect to maintain a competitive position in both markets to enhance our market leading position.” However he went on to state that there would be… ”…significant regulatory changes” in 2013 but that the company would continue to provide a high level of customer service.

Just Retirement have lead the way in the retirement income market in the past few years, offering flexible and innovative products for retirees.  This has been reflected in an increase in sales of their fixed term annuity which comes with an enhanced annuity conversion feature. They have also strongly supported reform of the annuity market which will help more retirees use the open market option.