Blue River Annuities

New EU Rules May Reduce UK Annuity Rates

UK pensioners could receive less income from their pension annuity after new EU rules come into force.

The proposed 'Solvency 2' rules would give insurers less flexibility in valuing their assets. With the new rules forcing insurers to hold more capital in reserve it may result in a reduction in annuity rates they pay. Although the rules have yet to be finalised it is thought that they may come into force as early as 2012.

Some reports have suggested that the income pensioners receive from their annuity policy could be reduced by as much as 20% under the rules, which are likely to force insurers to hold more capital in reserve. Companies that sell annuities often use corporate bonds to provide the income needed, but in time of crisis the market for these assets can dry up, making fair valuation impossible.