Solvency II regulation could reduce annuity rates by between 5%
and 20% according to research conducted by Deloitte.
The consultancy firm explained that the Solvency II regime may
force annuity providers to switch from investing in corporate bonds
to lower-yielding assets as well as also having to hold higher
levels of reserves.
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For a pensioner with a £100,000 ($157,000) pension fund,
Deloitte said these changes could reduce their income by between
£300 and £1,100 a year.
Richard Baddon, insurance partner at Deloitte, said: “A focus
for the UK has been the treatment of the ‘Matching Adjustment’,
which affects annuities and the way insurers set reserves and
calculate capital. The amount that annuity rates will fall by
depends on whether there is a favourable outcome to negotiations
around the Matching Adjustment.
“Whatever the outcome of these negotiations, it is likely that
insurance companies will need to charge more in future for
annuities. If there is an unfavourable outcome in relation to
Matching Adjustment the impact may be very significant.”
EU gender ruling impact
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By GlobalDataBaddon added that annuity rates will also be affected by the EU
gender ruling, due to be implemented on 21 December 2012.
The EU gender ruling means men and women will be offered the
same annuity rates and although it is not yet clear how this will
impact insurer pricing, it could mean that annuity rates fall for
men and rise for women.
