UK - Annuity rates will increase marginally following the Chancellor's decision to raise government borrowing by £20bn, the Annuity Bureau predicts.
Gordon Brown’s pre-Budget report set out plans to issue an extra £9bn worth of gilts this year and £11bn next year. But only one third – those dated 10 years or over – are suitable for annuity providers.
Annuity Bureau director Ronnie Lymburn said this was not enough to meet the high demand from annuity providers for long-dated bonds and that annuity rates would only rise marginally as a consequence.
Canada Life retirement income marketing manager Peter Carter explained: “Demand for this type of asset is particularly high at the “long” end – i.e. assets whose maturity date is 20 years or more, reflecting the 20-30 year duration of the average annuity plan.”
The increased issuance of gilts will also help pension funds, Mercer Investment Consulting says.
Senior consultant Andy Barber said: “Funds are increasing their exposure to bond markets but the bond markets in the UK are not that big, so I would imagine pension funds would welcome more supply of bonds, either corporate or government.”
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